Germany’s inflation eased to a four-month low in March, while Italy’s rose to its highest in over a year, highlighting diverging trends. The mixed data suggest uneven disinflation across the eurozone ahead of the bloc’s inflation release.
Preliminary consumer price data for March revealed that Germany and Italy are on different inflationary paths, suggesting uneven progress in curbing price pressures across the eurozone.
Germany’s inflation eased to a four-month low, whereas Italy saw an unexpected rise, its highest annual reading since late 2023.
Germany’s inflation continues to slow
Germany’s consumer price inflation slowed to 2.2% year-on-year in March 2025, according to a flash estimate from the Federal Statistical Office. This marks the lowest level since November 2024 and aligns with market expectations.
The deceleration was driven primarily by a notable slowdown in services inflation, which eased to 3.4% from 3.8% in February. Energy prices fell further, declining 2.8% compared to a 1.6% drop the previous month.
However, food inflation edged higher to 2.9%, up from 2.4%. Core inflation—which strips out volatile items such as energy and food—cooled to 2.5%, its lowest level since June 2021.
On a monthly basis, consumer prices rose by 0.3%, down from 0.4% in February.
Germany’s harmonised index of consumer prices (HICP), which allows for cross-country comparison within the euro area, declined to 2.3% from 2.6%, just below the expected 2.4%. This marks the lowest HICP rate since September 2024.
Italy posts surprise inflation uptick
In contrast, Italy’s inflation rate rose unexpectedly. Consumer prices increased 2.0% year-on-year in March, up from 1.6% in February and beating analysts’ forecasts, according to preliminary figures from Istat, the national statistics office.
The acceleration was driven by higher energy and food costs, as well as upward pressures from recreational services and the conclusion of winter clothing and footwear sales.
Non-regulated energy prices rose 1.3% after a 1.9% decline in February. Tobacco prices also climbed, rising 4.6%, while unprocessed food inflation accelerated to 3.3%. Prices for communication services and recreational activities continued to trend higher.
Meanwhile, the drop in prices of durable goods moderated, and core inflation remained unchanged at 1.7%.
Eurozone implications
The divergent trends from Germany and Italy are shaping economists’ expectations for the broader euro area data due on Tuesday.
Katya Vashkinskaya, an economist at Goldman Sachs, said the firm has slightly revised its euro area core inflation forecast for March down to 2.39% year-on-year. However, it raised its headline inflation projection to 2.15%, citing stronger-than-anticipated non-core pressures in Germany and Italy.
Economists expect the euro area headline inflation to slow to 2.2% in March, down from 2.3% in February, while core inflation is projected to ease to 2.5% from 2.6%.
Tariffs weigh on European markets
Markets showed limited response to the inflation figures. The euro-dollar exchange rate held steady at around 1.0810.
European equities, however, continued their downward trend amid broader concerns tied to potential U.S. trade tariffs expected to be announced on 2 April by the Donald Trump administration.
Italy’s FTSE MIB led losses, falling 2.4%, followed 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%, while the wider STOXX 600 shed 1.7%.
Banks and industrial stocks bore the brunt of the sell-off. Shares in Société Générale tumbled 4.2%, UBS declined 4%, Deutsche Bank 3.4%, Banco Santander 3.2%, and UniCredit 2.9%.
Automakers also faced selling pressure. Volkswagen shares lost 4.1%, BMW 3.9%, and Mercedes-Benz 3.3%, each on track for a fourth consecutive session of declines. Porsche dropped 4.3%, heading for its ninth straight day of losses and its thirteenth in the past fourteen sessions.
