German government debt climbs to almost €2.7 trillion

German inflation fell by 0.1 percentage points to 2.2% in March, official figures showed on Monday.

The flash estimate from the Federal Statistical Office showed inflation dropping slightly from the level of 2.3% in both January and February.

Food prices remained a key driver of inflation, rising 2.9% compared to the previous year.

However, falling energy prices had a dampening effect in March, down 2.8%.

"While energy prices are reducing overall inflation, relatively high price increases were again recorded for services and food in March," said Michael Heise, chief economist at asset manager HQ Trust.

However, Stephanie Schoenwald from German bank KfW warned that energy could soon become more expensive again due to uncertainty in global trade caused by US President Donald Trump's tariff policy.

Inflation in services also dropped to 3.4%, with Commerzbank chief economist Jörg Krämer arguing that "the weak economy is making it more difficult for companies to pass on the sharp rise in wages to consumers."

The German inflation rate is expected to remain above the 2% target set by the European Central Bank (ECB) throughout the coming year.

And some economists have warned that prices could rise even further after a massive package intended to hike spending on defence, infrastructure and climate protection passed in the German parliament earlier this month.

The pro-business German Economic Institute highlighted the "risk that additional debt will create inflationary pressure, causing interest rates to rise and the hoped-for growth stimulus to fizzle out."

However, Sebastian Dullen from the Macroeconomic Policy Institute argued that the package is unlikely to "endanger price stability in Germany in the foreseeable future."

Excluding the volatile prices of energy and food, the core German inflation rate dropped to 2.5% in March, down from 2.7% in February.

Falling inflation in Europe's largest economy could give the ECB room to manoeuvre ahead of its next decision on interest rates on April 17.

The central bank has cut interest rates six times since June 2024, with its deposit rate currently standing at 2.5%.