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German inflation hits five-month low of 9.2%

German inflation hit a five-month low of 9.2 per cent in January, according to delayed data that could require an upward revision to last week’s eurozone-wide figure.

The federal statistical agency said annual inflation fell from 9.6 per cent in December, but it gave no details on the main factors driving the change or how it accounted for government subsidies to cut consumers’ energy bills. Economists had expected an increase in German inflation to 10 per cent last month, according to a poll by Reuters.

Publication of Germany’s inflation data was delayed last week due to “an unexpected technical problem”, which the federal statistical agency said on Thursday was linked to the change of its base year for price statistics from 2015 to 2020.

This meant Eurostat, the EU’s statistics agency, had to estimate price growth in Europe’s largest economy in order to calculate inflation for the overall euro area. Germany makes up more than a quarter of all price data used to calculate eurozone inflation.

Any change in eurozone inflation for January may alter the perception of how rapidly price pressures are receding in the region and shift market expectations of when the European Central Bank will stop raising interest rates.

As part of its flash estimate that eurozone inflation fell from 9.2 per cent in December to 8.5 per cent last month, analysts calculated that Eurostat used an estimate of 8.7 per cent for Germany.

Line chart of  showing Past its peak: German inflation has started to slow

Based on the higher inflation figure reported by Germany on Thursday, ING economist Carsten Brzeski estimated the eurozone figure for January was likely to be revised up by about 0.1 percentage point to 8.6 per cent.

“We’re still left wondering exactly what happened to German prices at the start of the year,” said Claus Vistesen, an economist at Pantheon Macroeconomics, adding that the German inflation figure was “a slight upside surprise, but a minor one, in the end”.

Germany’s central bank boss Joachim Nagel, who is a member of the ECB rate-setting governing council, warned this week there was “a great danger” that inflation could remain too high if it stopped raising rates too soon.

The Bundesbank president told Börsen-Zeitung on Tuesday that “further, significant rate hikes” were still needed because even after it raised its deposit rate to 2.5 per cent last week, this did not yet seem “restrictive” to him.

Calculating German inflation has been made harder by the role of government subsidies designed to cushion the impact of higher energy prices on households.

In December, Berlin paid the gas bills of most German households. This was a one-off, meaning that when it ended at the start of January consumer energy bills bounced back up.

An extra complication is that the German government has announced plans to introduce a price brake in March to offset most of the increase in gas and electricity costs for households that will apply retrospectively to their bills since the start of the year.

The Bundesbank has estimated that energy price caps and cheap public transport tickets will lower average German inflation by 1.5 percentage points this year.

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