Germany and Italy diverge on inflation: What implications for the eurozone?

Preliminary client value knowledge for March revealed that Germany and Italy are on totally different inflationary paths, suggesting uneven progress in curbing value pressures throughout the eurozone.

Germany’s inflation eased to a four-month low, whereas Italy noticed an surprising rise, its highest annual studying since late 2023.

Germany’s inflation continues to sluggish

Germany’s client value inflation slowed to 2.2% year-on-year in March 2025, based on a flash estimate from the Federal Statistical Workplace. This marks the bottom degree since November 2024 and aligns with market expectations.

The deceleration was pushed primarily by a notable slowdown in companies inflation, which eased to three.4% from 3.8% in February. Power costs fell additional, declining 2.8% in comparison with a 1.6% drop the earlier month.

Nevertheless, meals inflation edged larger to 2.9%, up from 2.4%. Core inflation—which strips out unstable gadgets comparable to power and meals—cooled to 2.5%, its lowest degree since June 2021.

On a month-to-month foundation, client costs rose by 0.3%, down from 0.4% in February.

Germany’s harmonised index of client costs (HICP), which permits for cross-country comparability throughout the euro space, declined to 2.3% from 2.6%, slightly below the anticipated 2.4%. This marks the bottom HICP price since September 2024.

Italy posts shock inflation uptick

In distinction, Italy’s inflation price rose unexpectedly. Client costs elevated 2.0% year-on-year in March, up from 1.6% in February and beating analysts’ forecasts, based on preliminary figures from Istat, the nationwide statistics workplace.

The acceleration was pushed by larger power and meals prices, in addition to upward pressures from leisure companies and the conclusion of winter clothes and footwear gross sales.

Non-regulated power costs rose 1.3% after a 1.9% decline in February. Tobacco costs additionally climbed, rising 4.6%, whereas unprocessed meals inflation accelerated to three.3%. Costs for communication companies and leisure actions continued to pattern larger.

In the meantime, the drop in costs of sturdy items moderated, and core inflation remained unchanged at 1.7%.

Eurozone implications

The divergent tendencies from Germany and Italy are shaping economists’ expectations for the broader euro space knowledge due on Tuesday.

Katya Vashkinskaya, an economist at Goldman Sachs, mentioned the agency has barely revised its euro space core inflation forecast for March all the way down to 2.39% year-on-year. Nevertheless, it raised its headline inflation projection to 2.15%, citing stronger-than-anticipated non-core pressures in Germany and Italy.

Economists anticipate the euro space headline inflation to sluggish to 2.2% in March, down from 2.3% in February, whereas core inflation is projected to ease to 2.5% from 2.6%.

Tariffs weigh on European markets

Markets confirmed restricted response to the inflation figures. The euro-dollar alternate price held regular at round 1.0810.

European equities, nonetheless, continued their downward pattern amid broader considerations tied to potential U.S. commerce tariffs anticipated to be introduced on 2 April by the Donald Trump administration.

Italy’s FTSE MIB led losses, falling 2.4%, adopted by France’s CAC 40 (-2.2%), Spain’s IBEX 35 (-1.9%) and Germany’s DAX (-1.5%). The Euro STOXX 50 dropped 2.3%, whereas the broader STOXX 600 shed 1.7%.

Banks and industrial shares bore the brunt of the sell-off. Shares in Société Générale tumbled 4.2%, UBS declined 4%, Deutsche Financial institution 3.4%, Banco Santander 3.2%, and UniCredit 2.9%.

Automakers additionally confronted promoting strain. Volkswagen shares misplaced 4.1%, BMW 3.9%, and Mercedes-Benz 3.3%, every on monitor for a fourth consecutive session of declines. Porsche dropped 4.3%, heading for its ninth straight day of losses and its thirteenth up to now fourteen periods.