Germany: Inflation Falls to a Seven-Month Low

Inflation in Germany slowed to its lowest level in seven months, prompting the European Central Bank (ECB) to consider further interest rate cuts amid uncertainty over US tariffs. Consumer prices rose by 2.2% compared to a year ago, down from 2.3% in March, according to the statistical office’s announcement on April 30, 2025. This figure is slightly above Bloomberg’s median estimate of 2.1%. The cost of services in Germany accelerated but might have been influenced by the later Easter holidays this year. These inflation figures follow unexpected numbers from France and Spain, though France’s reading was the lowest since February 2021. Data expected on Friday, May 2, 2025, may show that eurozone prices increased by 2.1% compared to last April, slightly lower than the previous month and just above the ECB’s target of 2%. A core measure excluding volatile items like energy is estimated to have risen. ECB policymakers sound optimistic about inflation trends and are preparing for another interest rate cut in June following the seventh reduction in this cycle this month. However, they highlight ‘exceptional uncertainty,’ mainly due to President Trump’s tariffs. The eurozone economy expanded more than expected in the first quarter, with GDP growth at 0.4%, double the previous period. Yet, this doesn’t account for impacts from Trump Liberation Day earlier this month. With contributions likely to weigh on growth, investors are pricing in two or three more rate cuts in 2025. Some economists foresee even more reductions, while Franklin Templeton stated this week that the ECB might start considering a rate hike by year-end.