In January, Germany's annual inflation rate decreased

Annual inflation in Germany slowed somewhat in January but remained significantly over experts' expectations and well beyond the European Central Bank's price stability objective of 2% for the eurozone as a whole, and preliminary data showed on Monday.

Consumer prices, which are harmonized to make them similar to other European Union nations (HICP), increased 5.1 percent year on year in January, the Federal Statistics Office reported. They rose 5.7 percent in December. On an annual basis, the national consumer price index (CPI) increased by 4.9 percent, down from 5.3 percent in December.

According to a Reuters poll of economists, the CPI rate would be 4.3 percent, and the HICP rate would be 4.7 percent.

"The fall in inflation is entirely attributable to the fact that the effect of the temporary VAT cut in 2020 does not bias year-on-year comparisons higher as it did in previous months," Commerzbank analyst Marco Wagner explained.

Simultaneously, researchers noted supply constraints and high energy prices significantly curtailed the predicted favorable effect.

According to Michael Heise, chief economist at HQ Trust, because surveys of German and international businesses have revealed no improvement in supply chain disruption, year-on-year CPI rates are expected to remain over 4.5 percent for a few more months.

"Given the grave geopolitical tensions with Russia, counting on a desirable decline in energy costs in the foreseeable future looks wishful thinking," Heise noted.

Although eurozone inflation reached 5% last month, the highest level on record for the 19-country currency union, the ECB forecasts it to fall back below the 2% target in both 2023 and 2024, even without further policy tightening, as one-off pressures recede. continue reading

Last week, Philip Lane, the ECB's top economist, told a Lithuanian newspaper that the central bank would tighten policy if inflation remained over its goal. However, that scenario looks less plausible at the moment.

The ECB meets next Thursday, although no policy decision is expected given the bank's December announcement of a complicated package of measures.

In a departure from previous estimates, the German Economy Ministry indicated this week that it expected consumer price inflation to continue to climb this year.

On Thursday, the leader of Germany's IG Metall union stated that increasing real wages will be a primary objective in future collective negotiation rounds in the iron and steel and metal and electrical industries.