German inflation eases, spurring hopes for another ECB cut
Inflation falls in all major euro zone economies
German inflation data bolsters case for another rate cut
Euro zone September inflation figures due on Tuesday
Adds details on inflation components and inflation trend from paragraph 14
By Maria Martinez and Rachel More
BERLIN, Sept 30 (Reuters) -German inflation fell to its lowest level since February 2021 this month, preliminary data showed on Monday, helping European Central Bank doves build their case for another interest rate cut next month.
German inflation eased slightly more than forecast to 1.8% in September,data from the federal statistics office showed.
Analysts polled by Reuters had forecast a reading of 1.9% in September, after a year-on-year increase in consumer prices of 2.0% in August, based on data harmonised to compare with other European Union countries.
The ECB, which has a 2% inflation target, has cut interest rates twice this year and markets have recently swung to price in the strong chance of another quarter-point cut in October.
The German inflation figures bolster the case for the ECB to bring a rate cut at the October meeting back on the table, said Carsten Brzeski, global head of macro at ING.
"The recent series of disappointing economic sentiment indicators and lower-than-expected inflation data have provided new strong arguments for ECB doves," Brzeski said.
Core inflation, which excludes volatile food and energy prices, fell to 2.7% in September from 2.8% in August.
Inflation had already eased in two other major euro zone economies, Spain and France. Data showed earlier on Monday that inflation also fell in Italy.
The falls in headline and services inflation in the major euro zone economies in September, along with evidence that activity is slowing, has boosted the chance of another ECB rate cut in October, said Andrew Kenningham, chief Europe economist at Capital Economics.
"We will firm up our forecast for the ECB tomorrow but the risks are clearly tilting towards earlier rate cuts than we had anticipated," Kenningham said.
Economists pay close attention to German inflation data as the country publishes its figures a day before euro zone inflation data.
Inflation in the euro zone is expected to ease further to 1.9% in September from 2.2% the previous month, according to economists polled by Reuters.
However, the ECB always expected the September euro zone reading to be low – mostly because of the high base effect from energy prices a year ago - and has warned that inflation may pick up over the next few months.
The decline in inflation in Germany is indeed the result of favourable energy price base effects. Energy prices fell 7.6% year-on-year in September, offsetting a small uptick in food inflation, which rose to 1.6% in September from 1.5% in August.
Services inflation, which had been sticky in the previous months, fell modestly to 3.8% in September from 3.9% in August.
Forward-looking indicators suggest inflation will remain relatively stable in the coming months with a slight uptick in headline inflation towards the end of the year.
According to an Ifo survey published on Monday, fewer companies in Germany are looking to raise their prices. The Ifo price expectations index fell in September to its lowest level since February 2021.
“The economic crisis is reducing the scope for companies to raise their prices,” said Timo Wollmershaeuser, head of forecasts at Ifo.
“Overall, the inflation rate in Germany in the coming months is likely to remain below the 2% mark targeted by the ECB,” Wollmershaeuser said.
Reporting by Maria Martinez and Rachel More; editing by Ed Osmond, Christina Fincher and Toby Chopra
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