German Inflation Climbs to 2.1%, Complicating ECB Outlook
Germany’s inflation rate moved higher at the start of the year, pointing to lingering price pressures after months of cooling.
- Germany’s inflation moved back above target in January, with the annual rate rising to 2.1%, driven mainly by a sharp increase in food prices.
- While services inflation eased, core inflation edged higher, reinforcing a mixed outlook for the European Central Bank as price pressures remain uneven.
A preliminary estimate showed annual inflation rising to 2.1% in January 2026, up from December’s 15-month low of 1.8% and slightly above market expectations of 2.0%.
The harmonized index of consumer prices (HICP), the measure closely monitored by the European Central Bank, also came in at 2.1%. This places inflation just above the ECB’s 2% target and underscores that the final stretch toward price stability may be uneven.
Food prices drive goods inflation higher
The main source of upward pressure came from goods prices. Goods inflation accelerated to 1.0% from 0.4%, largely reflecting a sharp rise in food prices. Food inflation jumped to 2.1% year on year, up from just 0.8% in December, reversing much of the recent easing trend.
This acceleration occurred despite a deeper decline in energy prices. Energy costs fell 1.7% annually, compared with a 1.3% drop the previous month, continuing to act as a drag on headline inflation.
Services inflation eases, core edges higher
In contrast, services inflation showed signs of cooling. Price growth in the services sector slowed to 3.2% from 3.5%, offering some relief on domestically driven pressures such as wages, rents, and hospitality costs.
Core inflation, which excludes food and energy, ticked up slightly to 2.5% from 2.4%. The increase followed December’s reading, which marked the lowest core inflation level in more than four years, suggesting that progress on underlying inflation remains fragile rather than firmly established.
Implications for the ECB outlook
The latest data paint a mixed picture for policymakers. While inflation in Germany is now close to the ECB’s target, renewed pressure from food prices and a slight rise in core inflation could complicate decisions on the timing and pace of potential interest-rate cuts.
For now, the figures suggest inflation is stabilizing, but not yet convincingly defeated, keeping the central bank cautious.
U.S. producer prices add to global pressure
Adding to the broader inflation narrative, a separate report from the United States showed producer prices rising faster than expected. U.S. producer price inflation climbed to 3.0%, exceeding forecasts of 2.7%, signaling that upstream cost pressures remain elevated.
Taken together, the German and U.S. data highlight a common theme across major economies: headline inflation has cooled from its peaks, but underlying pressures remain sticky, making the path back to durable price stability far from straightforward.
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