Inflation dropped slightly in Germany last month, maintaining a rate just above two percent. But with further US tariffs expected, and the possibility of an escalating trade war, the economic outlook is anything but stable.
Germany’s inflation rate inched downwards in March, preliminary data showed Monday, but analysts warned that trade tensions could fuel faster consumer price rises in the near future.
Annual inflation in Europe’s largest economy was 2.2 percent in March, federal statistics agency Destatis said, down from 2.3 percent the previous month.
Analysts surveyed by financial data firm FactSet had expected a rate of 2.1 percent.
Falling energy prices and a strong euro relative to the dollar contributed to the fall, said Stephanie Schoenwald, economist at public lender KfW.
The single currency’s strength meant exports into Germany were cheaper.
But a potential “customs conflict” between the United States and Europe could strongly influence price growth in the future, Schoenwald said.
President Donald Trump has set April 2nd as the date to bring in wide-ranging tariffs against countries running persistent trade imbalances with the United States.
The size of the levies to be announced on Wednesday will vary from country to country and the precise plans remain unclear.
READ ALSO: How will Trump’s car tariffs impact Germany?
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ING bank analyst Carsten Brzeski said an “escalation of trade tensions and possible European retaliation to US tariffs could add to inflationary pressures in the short run”.
The fall in inflation in Germany meanwhile “paves the way” for another rate cut at the European Central Bank’s next meeting in April, Brzeski said.
ECB President Christine Lagarde said Monday that rate-setters were still faced with “lots of uncertainties” when it came to the inflation outlook, including the impact of potential tariffs.
READ ALSO: Germany says ‘nothing off table’ in response to US tariffs
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