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Germany’s inflation rate rose by more than expected in December, preliminary data released on Monday showed, deepening the country’s economic crisis ahead of snap federal elections next month.
The headline inflation rate increased to 2.9% last month, federal statistics office Destatis reported, up from 2.4% in November and above the 2.6% rate predicted by economists in a Reuters poll.
Core inflation, which excludes volatile food and energy costs, increased to 3.1%, up from 3% in November, while services inflation similarly rose by 0.1 percentage point, to 4.1%.
The data comes amid a deepening political crisis in the EU’s largest economy, with Berlin’s three-party federal coalition led by socialist Chancellor Olaf Scholz having collapsed in November after months of bickering over the federal budget.
Federal elections are set to be held on 23 February, with the Christian Democrats leading in the polls, ahead of the far-right Alternative for Germany (AfD) in second place.
The data also comes amid a worrying economic slump in Europe’s traditional manufacturing powerhouse – especially its flagship auto sector, which is reeling from a combination of high energy prices, slowing demand, and growing competition from China.
Corroborating these concerns, on Monday a closely-watched business survey confirmed that German private sector activity continued to contract last month.
Germany’s Composite PMI Output Index, compiled by Hamburg Commercial Bank, stood at 48.0 in December, above the preliminary estimate of 47.8 reported last month but below the 50-point mark that separates growth from contraction.
The picture is similar across much of the rest of the eurozone. The same survey put the index for the eurozone as a whole at 49.6, up from 48.3 in November. The net contraction came in spite of a strong upward revision of France’s preliminary estimate for December from 46.7 to 47.5.
Paris’s economic woes, like Germany’s, have been compounded by a political crisis triggered by President Emmanuel Macron’s decision to call snap elections following his centrist alliance’s disastrous performance in the EU elections in June.
Inflation data for the euro area as a whole is set to be released on Tuesday. Most economists expect the headline rate to rise to 2.4%, up from 2.2% in November, pushing it further away from the European Central Bank’s (ECB) 2% target rate.
However, inflation remains well below the peak of 10.6% recorded in October 2022, with price pressures having significantly abated after Russia’s full-scale invasion of Ukraine in February 2022 sent energy costs soaring across the bloc.
[Edited by Owen Morgan]
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