The German Bundesbank expects inflation to decline in March as it will be based on the higher prices that hit the country a year ago.
After the Russian invasion of Ukraine in February last year, energy prices jumped, driving up inflation as well.
"On the other hand from March onwards the increased price level shapes the basis for calculating the inflation rate, which is reflected in a lower overall rate," the Bundesbank explained in its monthly report.
In February, consumer prices in Europe's largest economy were still up 8.7% in comparison to the same month the previous year. By now according to economists inflation has broadened and includes many more products besides energy and food. The bank expects the core rate, without energy and food prices, to remain high.
At the same time, the Bundesbank continues to expect gross domestic product (GDP) to decline at the beginning of the year. "All in all, German economic activity is likely to decline again in the current quarter," the monthly report said.
The decline is likely to be smaller than in the final quarter of 2022, when German economic output fell by 0.4% compared to the previous quarter. If the GDP falls for two quarters in a row it is considered a technical recession.
According to the Bundesbank industry and construction strongly increased their production in January again.
Exports of goods, adjusted for price increases, only partially recovered. In addition the continuing high inflation is holding back consumer spending in Germany.
