German inflation drops to 1.8% in September, below expectations

The harmonized German consumer price index eased to 1.8% in September, coming in lower than expected, preliminary data from the country's statistics office Destatis showed on Monday.

The September harmonized CPI figure had been forecast to come in at 1.9% according to a Reuters poll. In August, the harmonized CPI had surprisingly eased to 2%.

On a monthly basis, the preliminary harmonized CPI dipped by 0.1%. A Reuters poll showed that the monthly reading was expected to be unchanged.

The German harmonized CPI figure was last under 2% — which is the European Central Bank's target rate for inflation — in February 2021, LSEG data indicated.

Inflation readings are harmonized in the euro area and in the European Union to ensure comparability.

Core inflation, which strips out food and energy costs, came in at 2.7% for September, slightly below August's 2.8% reading. Services inflation meanwhile eased to 3.8% after holding steady at 3.9% for several months.

Data from the statistics office also showed that energy costs plunged by 7.6% in September.

Sebastian Becker, economist at Deutsche Bank Research, said in a note on Monday that inflation could however pick back up towards the end of the year as base effects are expected to ease or even reverse.

"The inflation problem is not fully resolved with today's figures. For that, the still elevated core inflation rate would also need to ease notably. And that drop is still outstanding," he said according to a CNBC translation.

Continuing wage pressure means that services and core inflation will likely only fall slowly, Becker noted.

Data out earlier on Monday showed that inflation eased in several major German regions in September, with the print in the country's most populous state North-Rhine