German inflation eases to 2.7% in February, as expected

By Miranda Murray

BERLIN (Reuters) -Cheaper energy prices pushed German inflation down to 2.7% in February, according to data on Thursday that supports the case for the European Central bank to start cutting interest rates later this year.

German consumer prices, harmonised to compare with other EU countries, had risen by 3.1% year-on-year in January.

Core inflation, which excludes volatile food and energy prices, held at 3.4% for a second month in February.

The drop in the headline number was in line with expectations, but analysts said the slower decline in underlying price pressures vindicated the ECB's reluctance to signal imminent rate cuts.

"Without the volatile prices for energy and food, it (inflation) is hardly falling at all," said Commerzbank chief economist Joerg Kraemer. "The time is not yet ripe for ECB interest rate cuts."

Energy prices in February were 2.4% lower than in the same month of the previous year, despite the discontinuation of a government price cap and introduction of a higher carbon price.

Food prices were just 0.9% higher than the same month last year, below the overall inflation rate for the first time since November 2021.

"Employees will benefit from this through a noticeable rise in real wages," said KfW bank spokesperson Christine Volk.

"This is important to help the sluggish economy back on its feet," added Volk, who predicted that inflation would continue to fall, albeit at a slower pace.

German consumer sentiment is expected to stabilize at a low level in March, a survey showed earlier this week.

National inflation data for February is being published by individual euro zone countries before the EU-wide release, slated for Friday, which is expected to show headline inflation slowing to 2.5% year-on-year in February from 2.8% in January.

(Reporting by Miranda Murray and Bartosz Dabrowski; editing by Rachel More and Christina Fincher)