German CPI fell less than economists were expecting in March despite a significant drop in energy costs. The annualized increase in harmonized German consumer prices was 7.8%, which was higher than the 7.5% predicted. The report came hours after Spain’s annual CPI (consumer price index) nearly halved to 3.1% in March from 6% in the February. Although, Germany has a lot more weight in the EU, so the Eurozone inflation numbers tomorrow will likely follow the German numbers.

The ECB is considering whether to pause interest rate increases when it meets in May. Following the publication of Germany’s inflation figures, yields on interest rate-sensitive two-year debt increased by 0.08% to 2.7%, as investors anticipated a further increase in borrowing costs in the Eurozone. The primary reason for the drop in the German consumer price index was a decrease in energy inflation from 19.1% in February to 3.5% in March. However, this was partially offset by a slight acceleration in food inflation by 22.3% and service price growth by 4.8%.

German CPI Inflation Report by Destatis – 30 March 2023