Bundesbank expects temporary inflation rise, sees modest economic expansion ahead

In its latest monthly report, Bundesbank cautioned that inflation is expected to “temporarily increase” towards the end of the year. This uptick is anticipated as the currently negative inflation rates for energy turn positive, and the depressed profit margins for mineral oil products begin to recover.

Looking ahead, Bundesbank forecasts slight expansion in Germany’s economic output. The report notes that the ongoing weakness in the construction sector and industry—driven largely by weak foreign demand—will likely persist. Despite these challenges, Bundesbank expects growth in private consumption and service sectors during Q3.

The report highlights that with real incomes for private households on the rise, “consumer spending should increase,” though it may do so hesitantly. For instance, GfK Consumer Climate Index for July was above the average of the previous quarter, continuing its upward trend from recent months.

Full Bundesbank monthly report release here.