German Inflation At Lowest Since Start Of Ukraine War

German inflation experienced a decline this month, reaching its lowest point since the onset of the Ukraine conflict. This provides a slight ray of optimism while Europe's leading economy battles to recover from a downturn.

Russia's invasion of Ukraine last year, and subsequent move to slash crucial natural gas exports, triggered an energy crisis and sent consumer prices surging in Europe, with Germany particularly hard hit.

However, inflation came in at 4.5% year-on-year in September, down from 6.1% in August, with sharply lower energy costs contributing.

The last time inflation was lower was in February, 2022, the month Russia sent its forces into Ukraine.

The news will come as a relief to the European Central Bank, which has hiked interest rates aggressively to fight inflation, and will bolster expectations of a pause at its next meeting in October.

It is also a boost for policymakers in Europe's industrial powerhouse as they battle myriad problems. Problems in the global economy, and in particular a slow recovery from the pandemic in Germany's top trading partner China, are also weighing on investors’ minds.

Analysts now predict the German economy will shrink by 0.6% across the whole of 2023, sharply lower than earlier predictions.

The economy is struggling to get back on its feet after falling into recession around the turn of the year, and stagnating in the second quarter.

The IMF forecasts that Germany will be the sole major developed economy to experience a contraction this year. Earlier this month, the European Commission indicated that the decline in the German economy might be more severe than it had earlier anticipated.