German Inflation Edges Up to 2.9% in August on Energy Costs

German consumer prices rose at a slightly faster annual pace in August, driven by higher energy costs linked to the Iran conflict, though the increase came in below expectations and underlying inflation remained stable.

Preliminary data from the federal statistics office showed the EU-harmonised inflation rate at 2.9% year-on-year, up from 2.8% in July. Analysts had forecast a reading of 3.1%.

Energy prices were the main driver, surging 10.5% in August compared with 8.3% the previous month. The German government now projects inflation to average 2.7% this year and 2.8% in 2027.

Core inflation, which strips out volatile food and energy items, held steady at 2.4%. Economists noted this level remains above the European Central Bank's comfort zone and is unlikely to fall soon.

Services inflation eased for a second straight month, dipping to 2.8% from 2.9%. Analysts said there were no clear signs yet that higher energy costs were spilling over into broader price pressures.

The data comes ahead of the euro zone inflation release on Tuesday, where economists expect the bloc's rate to rise to 3.3% in August from 2.9%.

ECB policymakers are prepared to raise interest rates in September to counter the effects of the Iran war, but they appear reluctant to signal further tightening beyond that.

Some analysts warn that headline inflation could climb above 3% again in the autumn, with potential knock-on effects from energy on transport costs and drought-related food prices. One economist suggested it might take until the end of 2027 before inflation falls back below 2%.