German Inflation Set To Rise As War-Driven Costs Bite

Preliminary inflation readings from four major German states are indicating that Germany's national inflation rate is likely to rise in July. According to Reuters, inflation rose in Bavaria (to 2.8% from 2.5%), North Rhine-Westphalia (to 2.7% from 2.1%), Baden-Wuerttemberg (to 2.5% from 2.1%), and Lower Saxony (to 2.7% from 2.5%) in the early numbers.

Economists polled by Reuters are now looking for Germany's harmonized inflation rate at 2.8% in July, up from 2.4% in June. This uptick is attributed to the ongoing war in Iran, which has lifted energy and raw-material costs in recent months.

The European Central Bank kept borrowing costs unchanged in July, but a run of firmer inflation would make it harder for them to declare the job done, potentially keeping policy restrictive for longer. This development will be closely watched by markets, as traders typically reprice the path for the European Central Bank's next moves in response.