The European Central Bank may need to be more careful in undertaking its aggressive rate cut after seeing rising inflation in Germany, with its second trim at 60 basis points and 25 basis points right after, which may be too fast for the market to adjust.

Germany's inflation rate ticked up to 2.2% annually in November 2024, a 0.2% higher growth than a year ago, with hope that prices continue to moderate across the economy. The Federal Statistical Office reported that while overall inflation remained relatively stable, services cost the most, almost 4.0% higher compared to last year. Energy prices managed to offset this by 3.7% from November 2023, largely due to lower costs for motor fuel, heating oil, and electricity.

Germany's economy is not doing much better, with consumer confidence hitting its lowest point in seven months. GfK Consumer Climate Indicator dropped to -23.3 in December, expressing rising economic anxiety and job losses in key industries. Private consumption, which makes up half of Germany’s GDP, is also likely to decline further, provoking fears of a recession in addition to a stagnated export sector, U.S. trade tariffs, and political instability in France.

The ECB is likely to ease further with a target of a 2% deposit rate around March next year in decrements of 25 basis points at each meeting. However, the target could be readjusted if eurozone prices returned to above 3% and Germany, as its largest economic contributor, ended the year with 0% growth.

Sources: Destatis, Euronews
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