Germany’s inflation rate unexpectedly accelerated at the start of the year. According to preliminary data from the Federal Statistical Office, consumer prices rose 2.1 percent in January 2026 compared to the same month last year – up from 1.8 percent in December, which was the lowest level in more than a year. The increase slightly exceeded market expectations of 2.0 percent.

The main drivers of inflation were food prices, which rose 2.1 percent year-on-year – up from just 0.8 percent in December. According to data from federal states, coffee, chocolate, meat, as well as fruits and vegetables saw particularly sharp price increases. In North Rhine-Westphalia, cucumber prices rose 25 percent and roasted coffee prices increased 24 percent.

Services saw above-average price increases of 3.2 percent. This was partly due to the increase in the Deutschlandticket from 58 to 63 euros. Additionally, many restaurants did not pass on to customers the VAT reduction on meals from 19 to 7 percent that was decided at the turn of the year.

Energy prices, however, provided relief, standing 1.7 percent below the prior-year level according to the Federal Statistical Office. Electricity and gas were cheaper than a year ago, while fuel prices increased – partly due to higher crude oil prices resulting from the Iran conflict and the increase in the CO2 price from 55 to 65 euros per ton

Bundesbank President Joachim Nagel expressed cautious optimism. The inflation rate could fall below the two percent mark for a few months, he said. In the long term, the outlook is stable at around two percent – the European Central Bank’s target rate.

Nevertheless, economists expect that inflation for the full year 2026 will be slightly above two percent. The recent minimum wage increase as well as continued strong wage growth are likely to support inflation, as many companies pass increased costs on to their customers. The strong euro, which makes imports cheaper, is having a dampening effect, however.

The ECB has kept its key interest rate unchanged at 2.0 percent since June 2025. An interest rate decision is scheduled for February 5