German inflation is heading back above 3% and will remain elevated through year-end, according to ING economists Carsten Brzeski and Franziska Biehl, but the eurozone’s largest economy is unlikely to see a return to the double-digit price surges that gripped markets in 2022. The key factor tempering inflation expectations is a widespread profit squeeze across German businesses, which is limiting their ability to pass additional costs onto consumers. This marks a significant shift from the post-pandemic environment when companies could more easily raise prices. The assessment comes as traders and policymakers closely monitor inflation data to gauge the European Central Bank’s next moves on interest rates. While 3% inflation remains above the ECB’s 2% target, the contained outlook suggests the extreme pressure that characterized the 2022 energy crisis is not returning.
FXnCO Insight
German inflation staying elevated but capped below crisis levels reduces pressure on the ECB for aggressive rate hikes, potentially supporting euro fixed-income positioning and limiting volatility in EUR pairs.
Source: FXStreet