German inflation falls again to 2.5% in February

German inflation fell again this month to its lowest level since June 2021, with the February headline rate hitting 2.5% on an annualised basis, compared with 2.9% in January, according to flash estimates released on Thursday.

The figure was driven by a plunge in food inflation, to 0.9% from January's figure of 3.8%, although energy inflation crept up by 0.4 percentage points to -2.4%.

Core inflation, which strips out volatile items such as energy and food, was unchanged at 3.4%.

"Looking ahead, inflation developments in the coming months will be determined by two opposing trends: more disinflation and potentially even deflation as a result of weaker demand, but also new inflationary pressures due to less favourable base effects, supply chain frictions as a result of the tensions in the Red Sea, as well as government interventions and austerity measures," said Carsten Brzeski at ING.

"Let’s not forget that not all of the announced austerity measures in Germany have actually been implemented."

"Today's German macro data will fuel speculations about an early European Central Bank rate cut as disinflation continues and economic activity remains weak. However, underneath the favourable headline inflation rate, there are still enough price pressures to worry about – which should deter the ECB from cutting rates too early."

Reporting by Frank Prenesti for Sharecast.com