BRUSSELS (dpa-AFX) - Consumer price inflation in Germany accelerated at a faster than expected pace in July to its strongest in three months as energy prices surged after the government's fuel tax rebate ended and also due to the intensification of the conflict in the Middle East. The inflation shoot up in the biggest euro area economy has raised the speculation regarding an interest rate hike in the September policy session of the European Central Bank.
Headline inflation, as measured on the consumer price index, climbed to 2.8 percent from 2.3 percent in June, preliminary data from the statistical office Destatis showed Thursday. That surpassed the 2.7 percent increase economists had forecast.
The latest CPI inflation rate was the highest since the 2.9 percent in April.
Energy inflation jumped to a three-month high of 8.3 percent in July from 3.4 percent in the previous month. Food prices rose 0.4 percent year-on-year, same as in June.
Meanwhile, core inflation, which excludes prices of food and energy, eased to a three-month low of 2.4 percent from 2.5 percent.
Inflation, based on the harmonized index of consumer prices or HICP, accelerated to a three-month high of 2.8 percent from 2.4 percent. That was in line with economists' expectations.
'The short-term trend in the inflation rate clearly depends heavily on further developments in the Middle East,' Commerzbank economist Ralph Solveen said. 'As long as the current pattern of alternating good and bad news persists, oil prices - and thus energy prices for households - are likely to experience significant fluctuations.'
The economist expects inflation to ease back to 2 percent as energy prices decline once the Iran war ends. That said, core inflation is likely to slow only gradually, Solveen said. 'While labor costs have been rising more slowly for some time now, which is putting a brake on service prices, companies are likely to increasingly pass on their higher energy costs to their customers,' the economist added.
Services inflation slowed to 2.9 percent from 3.1 percent. Goods prices rose 2.5 percent, which was much faster than the 1.7 percent increase in the previous month.
Consumer prices rose 0.8 percent from June, which was slightly faster than the 0.7 percent increase economists had forecast.
The EU measure of inflation rose 0.9 percent from June, when it fell 0.2 percent. Economists had forecast a 0.8 percent increase.
ING economist Carsten Brzeski also expects inflation to remain higher in the coming months due to higher energy prices and subsequently higher costs. In addition, the economist expects the current heatwave in Europe to play a role in keeping prices high.
'Lower water levels in main waterways could bring new supply chain disruptions, and damaged crops could add to food price inflation,' Brzeski said. That could push headline inflation above 3 percent over the next few months, before it moves below 2 percent again next summer, the economist reckoned.
'Together with today's surprisingly strong eurozone growth data and improving sentiment indicators, the ECB will probably use increasing inflation data to justify a September rate hike,' Brzeski said. 'Not that we think a rate hike would be needed, but the ECB's strong willingness and determination to nip inflation in the bud has made a September hike almost a done deal.'
Flash data released earlier on Thursday showed that Eurozone gross domestic product grew a faster-than-expected 0.4 percent sequentially in the second quarter after remaining flat in the first quarter. This was the strongest pace of growth since the first quarter of 2025.
The German economy logged a better-than-expected GDP growth of 0.2 percent in the second quarter after expanding by revised 0.4 percent in the first quarter.
Separately, survey data from the European Commission showed that Euro area economic sentiment was less negative in July as pessimism reduced among households as well as businesses.
The ECB left interest rates unchanged last week, but comments from the bank's chief Christine Lagarde leaned more towards an interest rate hike in September.
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