German inflation expectations cooling, Bundesbank says

German inflation expectations subsided last month, even though consumer prices surged and the country’s central bank warned of a further rise in the months ahead, a survey by the Bundesbank showed on Tuesday.

German households expected an inflation rate of 2.4% over the coming 12 months, a marked decline from the 3.1% seen in December, the Bundesbank’s Survey on Consumer Expectations showed.

Actual inflation in the euro zone’s biggest economy jumped to 1% last month after four straight negative readings, mostly because of a reversal of an earlier value-added tax cut, a stimulus measure enacted last year to help consumers during pandemic-fuelled lockdowns.

Bundesbank President Jens Weidmann warned last week that a further rise was likely and inflation could top 3% toward the end of the year, but this increase was largely temporary as it is mostly fuelled by one-off factors.

Although a 3% rate would exceed the European Central Bank’s target of nearly 2%, the ECB is unlikely to tighten policy. Overall euro zone inflation will remain below target and will actually fall next year as the impact of one-off factors fade.