German Inflation Slows Amid EU Divergence

The German Federal Statistical Office released preliminary data showing that consumer prices rose by 0.2% in August, below the expected 0.3%. The annual rate of inflation increased to 2.9%, a third consecutive monthly acceleration.

The increase is largely attributed to an energy shock caused by the war in Iran and the expiration of Germany's fuel duty discount. This has led to rising energy prices, which are contributing to the higher inflation rate.

However, despite the higher inflation rate, the European Central Bank (ECB) may not raise interest rates at its next meeting on Thursday. The ECB relies on the harmonised index of consumer prices (HICP), which is 2.9% in Germany, below the target of 2%.

The divergence in inflation rates across EU member states presents a challenge for the ECB. While Germany's inflation rate remains above target, other countries such as Spain and France have seen their inflation rates increase, but at a slower pace. The Spanish HICP rose to 4.5%, while France's increased to 2.7%.