Data released on Tuesday showed inflation slowed in December in Germany more than expected. The Consumer Price Index (CPI) declined to 8.6% in December from 10% in November. Commerzbank Chief Economist Dr. Jörg Krämer point out that core inflation increased further and added inflation will likely rise again in January.

Government's one-off payments lowered inflation

“German inflation fell sharply from 10.0% to 8.6% mainly because the government took over the monthly payments for gas for many citizens in December.”

“If energy and food prices are excluded, core inflation rose further in December – from 5.0% to an estimated 5.1%. This once again shows the strong impact of special effects in December and that there is no real easing of inflationary pressure.”

“Inflation is likely to increase again in January because the government will not once again take over the payments for gas and district heating. However, inflation is unlikely to return to double digits. This is because the statisticians will take the electricity and gas price brakes into account in the price statistics from January.”

“Germans will continue to suffer from high inflation for a long time due to the ECB's slow approach, even if the gas and electricity price brakes should depress inflation this year.”