German states signal October inflation slowdown ahead of national data
Preliminary readings from several large German states indicate inflation eases in October, pointing to a possible decline in the national rate later on Friday. The figures arrive as energy costs remain a key risk and just ahead of closely watched euro zone inflation data due next week.
Highlights
- Preliminary data shows inflation in Bavaria drops to 2.8%, North Rhine-Westphalia to 2.7%, and Lower Saxony to 2.9% in October.
- Economists polled by Reuters forecast Germany’s harmonised inflation rate at 3.1% in October, down from 3.3% in September, with national data due Friday.
- European Central Bank leaves rates unchanged Thursday but signals possible December hike, citing persistent energy-driven inflation risks.
State data points to softer national reading
As reported by Reuters, preliminary inflation data from key German states shows price growth slows in much of the country in October, strengthening expectations that the national harmonised rate also eases this month. Economists polled by Reuters forecast Germany's harmonised inflation rate at 3.1% in October, down from 3.3%, with national figures due later on Friday.In Bavaria, inflation falls to 2.8% in October from 3.2% in September. North Rhine-Westphalia records 2.7%, down from 3.3%, while Lower Saxony declines to 2.9% from 3.3%. Baden-Wuerttemberg posts a 0.3 percentage point drop to 2.6%, while Saxony remains unchanged at 2.8%.
Energy risks shape euro zone outlook
The German figures come before the euro zone's inflation release on Wednesday. Economists polled by Reuters expect inflation in the bloc at 3.9% in October, slightly above September's 3.8%.The war in Iran has pushed up energy prices in recent months, adding to inflation pressures. Germany's government currently expects inflation to reach 2.7% this year and 3.0% in 2027.
The European Central Bank leaves interest rates unchanged on Thursday but clearly hints at another increase in December, warning that high and rising energy costs are fuelling inflation risks.
Mario Draghi’s warning about the inflation-fighting trade-off for Europe highlighted how keeping interest rates above growth for too long can worsen debt dynamics and ultimately raise inflation risks via pressure for “fiscal dominance.” Our earlier article also argued that central banks should prioritise price stability while keeping rates no higher than necessary, because overly restrictive policy can curb investment, productivity and long-term growth—an issue that becomes more acute amid recurring supply and energy shocks.
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