Inflation and Unemployment in Germany Surprise with Spike in October

Germany's inflation for October was reported at 2.4%. This figure surpassed the European Central Bank's target of 2%, creating a surprise. The German economy, which narrowly avoided technical recession in the third quarter, is back in focus due to rising inflation rates. Experts had anticipated an inflation rate of 2.1% for October; however, the results came in above expectations.

Core inflation is on the rise. After reaching the target level in August, the harmonized inflation rate, which was 1.8% in September, increased again in October. Destatis data showed that core inflation, excluding more volatile food and energy prices, rose to 2.9% in October, up from 2.7% in September.

Inflation in the services sector also increased, rising from 3.8% to 4%. Deutsche Bank economist Sebastian Becker noted that this rise in core inflation indicates that price pressures have not yet been resolved, suggesting that greater patience is required.

Unexpected rise in unemployment. Seasonally adjusted unemployment figures in Germany also unexpectedly increased in October. This development indicated a weakening labor market. ING's global macroeconomics head Carsten Brzeski suggested that inflation could rise even higher in the last months of 2024 and may remain between 2% and 3% throughout the next year. Brzeski expressed that, despite the diminishing positive base effects from energy prices, wage increases have sustained this situation.

Germany avoided technical recession. The German economy grew by 0.2% in the third quarter compared to the previous quarter. The preliminary data released by Destatis on Wednesday showed that the country had steered clear of technical recession. Experts had anticipated a contraction of 0.1% in this quarter, so the announced figures came as a surprise.

Following these developments, broader Eurozone consumer price data, to be released on Thursday, will provide a clearer picture of the region's overall economic situation.