German inflation eases to 2.8% in October as fuel tax cut takes effect

Inflation slows more than forecast

The Federal Statistical Office put German consumer prices 2.8% above their year-earlier level in October, in its first estimate for the month, down from 3.3% in September. Services inflation eased to 2.5% from 2.7%, and food prices rose 0.4% on the year. Energy prices climbed 12.2% after 14.9% in September. Forecasts had pointed to a smaller drop: N-tv cited an expectation of 3.0%, while a Bloomberg survey had a 3.1% median, so the figure came in below both.

Fuel tax cut behind the drop

The government reintroduced a fuel tax cut for the second time this year, lowering the energy tax on petrol and diesel by about 14 cents per litre from 1 October through the end of 2026. The coalition of Union and SPD says that with VAT included, relief reaches up to 17 cents a litre, while another report put the cut at 17 cents on each fuel. Silke Tober of the Macroeconomic Policy Institute (IMK) at the Hans Böckler Foundation pointed to the cause.

“The fuel tax cut was decisive.”

She noted that the full 17 cents did not show at the pump, because the crude oil price had risen significantly again.

Economists see no relief yet

Commerzbank chief economist Jörg Krämer said inflation falling below 3% was mainly due to the fuel tax cut, but called it too early to sound the all-clear. He expects higher energy costs to gradually push up other goods and services.

“Around the turn of the year, inflation will probably be above 3 percent again.”

ING economist Carsten Brzeski saw no sign yet of indirect effects from higher energy prices on the wider economy. He said the situation differs from the 2022 energy crisis, because consumers are unwilling and unable to pay much higher prices, and prices for household goods and leisure offers have fallen for a second month. KfW economist Stephanie Schoenwald warned that the outlook remains tense, as gas and oil prices have risen significantly again on ongoing conflicts and lower stocks, and companies are raising their price expectations.

Heating season and the price cap

The Bundesbank expects energy prices to stay at a very high level from October to December, and it expects inflation to pick up noticeably early next year when the fuel tax cut expires. Brzeski expects gas prices to rise with the heating season and low gas storage levels, with households affected from early 2027. He forecasts inflation above 3% at year end and says it could take until late 2027 to fall back below 2%. Leading research institutes see inflation at 2.8% this year rising to 3.2% in 2027, and the ECB expects elevated inflation until at least 2027, after raising rates twice this year.

Economy Minister Katherina Reiche (CDU) is to draft a fuel price cap following a decision by the coalition committee, to be introduced by early 2027 at the latest. Reiche has stressed that supply security must not be endangered, and that fuel exports must be prevented from tightening supplies at home.

Other euro-zone countries and Saarland

The euro area recorded 3.8% in September, its highest level in three years. October estimates from other statistics offices show Italy jumping from 4.2% to 5.6%, well above expectations, France at a three-year high of 3.8%, and Spain nearly unchanged at 4.9%.

Germany2.8%

France3.8%

Spain4.9%

Italy5.6%

Germany

2.8 %

France

3.8 %

Spain

4.9 %

Italy

5.6 %

Data from the article text

The Saarland statistics office put regional inflation at 3.3% in October, down from 3.8% in September. Heating oil rose 89.4% and petrol 38.7% on the year, while firewood, wood pellets and similar fuels rose 19.5%. Electricity fell 4.9% and natural gas 1.5%. Food rose 1.0%, the eighth month in a row below overall inflation, with vegetables up 7.6%, while overnight stays cost 5.2% more and restaurant prices rose 2.6%.

Heating oil89.4%

Petrol38.7%

Firewood and pellets19.5%

Electricity-4.9%

Natural gas-1.5%

Heating oil

89.4 %

Petrol

38.7 %

Firewood and pellets

19.5 %

Electricity

-4.9 %

Natural gas

-1.5 %

Data from the article text