German economy stalls as inflation hits highest level since late 2023: Bundesbank

Germany’s economy likely stagnated in the third quarter as rising energy costs weighed on households, while September inflation reached its highest level since late 2023, the Bundesbank said Wednesday.

In its October report, the central bank attributed the pause in recovery partly to temporary factors, including low Rhine water levels and effects linked to fuel-tax relief.

High energy prices dampened household purchasing power, while weakness in the automotive sector weighed on industrial production in August. Factory holidays concentrated in that month also contributed.

Low water levels disrupted shipping and raised transport costs for energy-intensive industries, including oil refining and chemicals, weighing on foreign trade.

Construction output increased in August, although rising mortgage rates were expected to constrain activity.

Annual harmonized inflation climbed to 3.3% in September from 2.9% in August as the Middle East conflict drove energy prices higher.

The bank expects inflation to remain elevated, with energy costs increasingly feeding into industrial goods, food and services.

The expiration of fuel-tax relief and a health reform raising patient payments for medicines and hospital services in early 2027 are expected to add further inflationary pressure.