German inflation accelerated in September to its highest rate since December 2023, while seasonally adjusted unemployment rose slightly above three million, underscoring ongoing challenges for Europe’s largest economy. Preliminary data released Wednesday by Germany’s federal statistics office showed the harmonized consumer price index climbing to 3.3 percent year on year, exceeding analysts’ forecasts of 3.2 percent and up from 2.9 percent in August.
The sharp rise in inflation reflects a significant uptick in energy costs amid the ongoing conflict in Iran, which has disrupted global fuel markets. Energy inflation rose to 14.9 percent in September from 10.5 percent in the previous month, mirroring trends across major euro zone economies. By contrast, core inflation—which excludes volatile food and energy prices—held steady at 2.4 percent for the third consecutive month, suggesting that broader price pressures remain contained.
“The current inflationary pressure is primarily driven by energy prices,” said Carsten Brzeski, global head of macro at ING. He noted that the stabilizing core inflation figure might prompt some European Central Bank members to reconsider additional interest rate hikes.
The rise in living costs has contributed to political setbacks for Chancellor Friedrich Merz’s party, which suffered defeats in recent state elections amid voter concerns over household budgets. To alleviate fuel price pressures triggered by the Iran war, the federal government announced a temporary cut in gasoline and diesel taxes by €0.17 ($0.27) per liter, effective from Thursday through the end of December. Claus Vistesen, chief euro zone economist at Pantheon Macroeconomics, suggested the tax reduction will likely cause headline inflation to decline temporarily before rising again once the fuel duty cut expires.
On the labor front, the Federal Employment Agency reported a seasonally adjusted increase of 12,000 unemployed persons in September, bringing the total to 3.01 million—just above a politically sensitive threshold not exceeded since April. The unemployment rate remained stable at 6.4 percent. The non-adjusted total unemployment figure declined slightly below three million after two consecutive months above that level.
Labour office head Andrea Nahles commented on the sluggish early autumn labor market activity, noting that economic gains seen in earlier months have yet to translate into stronger employment. “The economic improvement not yet reaching the labour market,” she said.
Despite stronger-than-expected gross domestic product growth in the first half of the year, which prompted upward revisions from economic institutes, Germany’s economy showed signs of slowing in the third quarter. Analysts warn that the recovery is not yet self-sustaining, with persistently high energy prices and policy uncertainties weighing on consumer spending.
Nevertheless, retail sales in August rose by 1.3 percent month on month, indicating some resilience in household consumption. Looking ahead, Brzeski forecast a potential cyclical stabilization in the labor market but cautioned that structural challenges—such as cost-cutting in the automotive sector and elevated bankruptcy rates—are expected to persist.