Germany's inflation rate dropped to 1.9% in August 2024, the lowest since March 2021, boosting expectations of ECB rate cuts. The euro and Bund yields fell, while the DAX index hit record highs.
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Germany's annual inflation rate plummeted to 1.9% year-on-year in August 2024, according to flash data from the Federal Statistical Office released on Thursday. This marks a decline from 2.3% in July and falls short of economists' expectations of 2.1%, providing a welcoming downside.
The August inflation reading for Germany also marks the lowest annual increase in the consumer price index since March 2021. On a monthly basis, the index contracted by 0.1%, the first decline since November 2023.
German inflation falls expectations, as energy prices plummet
Breaking down the data, energy prices contracted by 5.1% on an annual basis, while goods inflation dropped from 0.9% to 0%. However, services inflation remained sticky at 3.9% for the fourth consecutive month.
Core inflation, which excludes volatile items such as energy and food, declined from 2.9% to 2.8% year-on-year, its lowest level since February 2022.
The harmonised index of consumer prices, which is used for assessing overall inflation across the eurozone, dropped from 2.6% year-on-year to 2% in August, also falling below the forecast of 2.3%.
This marks the slowest annual price growth for harmonised goods and services in Germany since March 2021. On a monthly basis, the harmonised index contracted by 0.2%, mirroring a similar decline observed in January 2024.
Earlier on Thursday, Spain also reported an unexpected drop in headline inflation.
The increase in Spain's national consumer basket slowed to 2.2% in August 2024, the lowest since June 2023. This represents a decline from 2.8% in July and falls below market expectations of 2.4%. Core CPI inflation in Spain also decreased by one-tenth of a percentage point, landing at 2.7% year-on-year.
The report from Spain's National Statistics Institute highlighted falling fuel prices as the primary factor, with food and non-alcoholic beverages also contributing to the downward trend.
Market reactions
The euro fell by 0.4% to just below $1.11 against the dollar, extending its morning losses after the release of U.S. GDP data.
The single currency had already started to weaken in anticipation of lower-than-expected German inflation, following the release of Spain's data and reports from various German states.
The 10-year Bund yield dropped by 2 basis points to 2.25%, while the yield on the 2-year Schatz fell by 5 basis points to 2.34%, reflecting growing market expectations of an interest rate cut by the European Central Bank.
The German DAX index maintained its session gains, up 0.7%, after reaching fresh all-time highs earlier in the day. Among the top performers were Bayer, Sartorius, and Rheinmetall, which gained 2.4%, 2.2%, and 2.1%, respectively.
Other European indices followed the DAX’s upward momentum. The Euro Stoxx 50, a key benchmark for European markets, rose by 0.8%.
