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Germany's Core CPI Index Rebounds to 126.6, Base Effect Helps Lo

By AI Insights

2026-01-20

Trend analysis based on the updated indicator. View the Indicator→

According to the latest DataTrack data, Germany's core CPI index for November was reported at 126.6, up 0.4 points from 126.2 in October, indicating that prices continue to fluctuate in the short term. However, when observing the year-on-year (YoY) rate, due to the higher base period in November 2024 (when the index jumped from 122.5 to 123.5), the current YoY calculation benefited from the "high base effect," significantly narrowing from 3.0% in the previous month to approximately 2.5%. This data presents a pattern of "monthly volatility with a long-term downward trend." Although it did not breach the historical high of 127.0 set in September, it reflects that core inflation has not plummeted in a straight line but is showing a slow retreat after consolidating at high levels.

Observing the details and trends, the support for this wave of core CPI mainly comes from previously accumulated structural pressures. Although the overall index is lower than the September peak, the rebound (+0.4) in November cannot be ignored, implying that potential price momentum has not completely extinguished. At the same time, the suppression of the YoY rate to 2.5% is mainly due to the mathematical base effect bonus, rather than a sharp weakening of price momentum in the current month. Market analysts point out that this data divergence (MoM rise vs. YoY decline) often occurs during inflation inflection periods, and investors need to pay more attention to the trend of the absolute value of the index rather than looking solely at the decline in the annual growth rate.

Regarding the driving factors behind the data, most institutions attribute this to the lagging effects of service sector inflation and wage growth. According to market information and relevant analysis by the European Central Bank (ECB), although Germany's economic recovery remains weak (growth is estimated at only about 0.2% in 2025), strong wage agreements and the pass-through of labor costs make "service" prices highly sticky, offsetting some of the decline in goods inflation. A Reuters survey has also pointed out that after excluding volatile food and energy, the stubbornness of core inflation is often higher than that of overall CPI, which is the main reason why the index rebounded immediately in November after a brief retracement in October.

Looking ahead, in the short term (1-2 months), supported by year-end festive demand, the core CPI index is likely to oscillate within the high range of 126.0-127.0, making a sharp collapse unlikely. In the medium term (3-6 months), as the ECB maintains a restrictive interest rate environment and Germany's economic momentum continues to hover at low levels, demand-side pressure is expected to ease further. ECB Staff Projections show that inflation in the Eurozone and Germany is not expected to stably return to the average level of 1.9% until 2026, implying that the rate cut cycle will adopt a "data-dependent" slow pace, and investors should be wary of the risk that the speed of inflation reduction may not meet expectations.

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