German Inflation Declines More Than Anticipated as Energy and Travel Costs Drop

According to Yahoo News, German inflation decreased more than expected in November due to falling energy and travel expenses, bringing the European Central Bank's (ECB) 2% target closer. Consumer prices increased by 2.3% compared to a year ago, down from 3% in October and below the 2.5% predicted by economists in a Bloomberg survey. On a monthly basis, prices fell by 0.7%, with package tours accounting for 0.15 percentage points of the decline. German bonds saw gains, with the yield on two-year debt dropping seven basis points on the day to 2.85%. The rally began after Spain reported a similar slowdown in inflation earlier on Wednesday. Inflation data for France, Italy, and the 20-nation euro zone is expected on Thursday, with euro zone inflation predicted to moderate to 2.7% – the lowest level since July 2021. Despite the positive news for the ECB, the figures are not expected to cause officials to declare an end to inflation concerns as they prepare for their final policy meeting of 2023. ECB President Christine Lagarde reiterated on Monday that inflation remains too high and has persisted for too long. Additionally, price pressures are widely anticipated to increase again from December due to statistical effects. New ECB projections available on December 14 will provide insight into how quickly and sustainably inflation is likely to return to 2%. This information will help policymakers shape their plans for next year, with investors anticipating rate cuts as early as April. In Germany, Bundesbank President Joachim Nagel has cautioned against easing up on the inflation battle too soon. He stated that officials cannot assume that price pressures will continue to decline as rapidly as they have over the past year.