KONTAN.CO.ID - BERLIN. Inflation in Germany eased noticeably in October, falling to its lowest level since August 2021, pointing to a substantial cooling in headline inflation in the euro zone.

German inflation eased in October to 3.0%, the federal statistics office said on Monday.

German consumer prices, harmonised to compare with other European Union countries, had risen by 4.3% year-on-year in September.

Core inflation, which excludes volatile food and energy prices, fell to 4.3% in October from 4.6% in the previous month.

Higher-than-forecast inflation is seen as one of the main risks by central bankers, as it could extend the tightening campaign of central banks, keeping interest rates higher for longer.

Euro zone inflation is expected to ease to 3.2% in October from 4.3% in September, according to economists polled by Reuters.

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Separated data on Monday showed Germany's economy shrank slightly in the third quarter, as Europe's largest economy continues to be weighed down by weak purchasing power and higher interest rates.

Gross domestic product fell by 0.1% quarter on quarter in adjusted terms, the federal statistics office said.

A Reuters poll had forecast the economy to shrink by 0.3%.

"These data alone underline that the German economy has at least become one of the growth laggards of the euro zone," said Carsten Brzeski, global head of macro at ING.

Looking ahead, the ongoing pass-through of the European Central Bank's monetary policy tightening, still no reversal of the inventory cycle and new geopolitical uncertainties will continue weighing on the German economy, Brzeski said.

"The German economy looks set to remain in the twilight zone between minor contraction and stagnation not only this year but also next year," Brzeski said.

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The contraction in the third quarter is not seen as an outlier as Commerzbank expects the German economy to contract again in the winter half-year.

"Consumption is unlikely to recover as optimists had hoped," Commerzbank's chief economist Joerg Kraemer said.

Household consumption fell in the third quarter, as high inflation continued to erode consumers' purchasing power

While consumption in Germany was a drag on GDP, capital investment made a positive contribution, the statistics office said.

"The net result, however, is that Germany’s economy is now firmly stuck in the mud," Pantheon Macroeconomics' chief eurozone economist Claus Vistesen said, adding the he doubts the economy will emerge from the mud in the fourth quarter.

Editor: Wahyu T.Rahmawati