BERLIN, April 29 - Germany's headline inflation ticked up in April to 2.9% year-on-year from 2.8% in March, preliminary figures from the national statistics office showed on Wednesday. The rise was driven chiefly by a sharp increase in energy costs, with prices for oil and natural gas up 10.1% year-on-year.
While the headline rate surprised on the upside relative to some previous monthly prints, it remained below a 3.1% increase that had been expected by analysts in a Reuters poll. Crucially for policymakers and markets, core inflation - which strips out volatile food and energy components - eased to 2.3% in April from 2.5% in March, signalling that the recent energy shock had not yet spread across the wider economy.
Economists welcomed the absence of so-called second-round effects - a process where higher input costs lead firms to push up prices and workers to demand larger pay increases - but cautioned that this could change if the conflict behind the energy shock persists.
Energy at the heart of the move
The statistics office attributed much of the headline increase to oil and natural gas. That 10.1% year-on-year spike in those items is closely tied to disruptions to shipping routes caused by the war in Iran, which has effectively blocked the Strait of Hormuz - through which around 20% of the world’s oil and natural gas typically transits. Several economists noted that the longer that disruption continues, the greater the chance that energy-driven price pressures will feed into other parts of the price basket.
"What matters now is that core inflation remains untouched by the oil shock," said Alexander Krueger, chief economist at Hauck Aufhaeuser Lampe Private Bank. Krueger's comment underlines the immediate policy relevance of the April print: a contained core eases near-term pressure on monetary authorities while the energy-led headline rise points to transitory volatility.
ZEW economist Friedrich Heinemann also pointed to the limited pass-through so far, but warned of a potential broadening of price pressures if the maritime blockade endures. "However, the longer the blockade of Hormuz continues, the more likely it becomes that the inflation process in Germany will broaden," Heinemann said. He added that a wider spread of inflation would begin to affect households beyond drivers.
Services, government measures and outlook
Some of the restraint on headline inflation in April came from lower services inflation. Services inflation fell to 2.8% in April from 3.2% in March, a decline that helped keep the overall rate below the 3% mark. "With every day that energy prices remain high, the likelihood increases that the energy price shock will work its way more deeply into the basket of goods and eventually lead to rising core and food price inflation as well," said Sebastian Beckers, economist at Deutsche Bank Research.
German authorities had already factored higher energy costs into updated economic forecasts. The government now expects inflation to accelerate to 2.7% this year and to reach 2.8% in 2027, compared with 2.2% last year.
At the end of March, the lower house of parliament approved an initial measure aimed at limiting surging fuel prices by restricting petrol stations to adjust prices only once daily, at midday (1000 GMT). Economists assessing April's numbers judged that step ineffective as a brake on prices. "The 12 o’clock rule at petrol stations has failed as a price brake and was therefore unable to slow inflation in April," Heinemann said.
Implications for policy and business sentiment
The German report precedes a euro zone inflation release that is due on Thursday, with economists surveyed by Reuters expecting inflation across the bloc to accelerate to 2.9% in April from 2.6% in March. The European Central Bank is widely expected to keep interest rates on hold at a meeting on Thursday, though the prospect of further hikes remains live for June.
Market and policy commentary highlighted the cushioning effect of the drop in German core inflation. "The fact that German core inflation actually dropped should provide the ECB with some comfort, at least in the near term," said Carsten Brzeski, global head of macro at ING. Nevertheless, Brzeski added that calls for ECB rate hikes would grow louder if underlying inflation pressures re-emerge.
Business sentiment indicators reflected rising cost pass-through. The Ifo Institute's indicator for price expectations climbed to 31.6 points in April from 25.5 points in March - its highest reading since January 2023. "Companies are now increasingly passing on rising energy costs to their customers," said Timo Wollmershaeuser, head of forecasts at Ifo.
For now, Germany's April data present a mixed picture: a headline increase centred on volatile energy components alongside a softer core that limits immediate policy urgency. But analysts emphasise that continued disruption to energy supplies would increase the risk of inflation broadening beyond fuel and utilities into services and food, reversing the current calm in core measures.