Inflation in Germany reaches a two-year low as U.K. wage growth cools

Inflation in Germany fell to a more than two-year low, according to data released Tuesday that suggest interest-rate cuts may be coming soon.

Germany’s Federal Statistical Office said consumer prices rose 2.5% year-over-year in February, down from 2.9% in January and 3.7% in December. It’s the lowest rate since June 2021.

The European Central Bank targets inflation in the eurozone as a whole to be 2%. Expectations are that the ECB will begin to cut rates in June. On the HICP measure the ECB targets, German inflation was 2.7% year-over-year.

“The rate of inflation has continued to slow,” says Ruth Brand, president of the Federal Statistical Office. “The price situation for energy products continues to ease. The increase in food prices has slowed markedly and is now below the overall inflation rate for the first time in more than two years.”

Germany’s inflation data come as the U.K. reported that average earnings in the three months to January slowed to 5.6% from 5.9%, while the unemployment rate inched up to 3.9%. “Our best guess is that the labor market is at least stagnating,” said Allan Monks, an economist at JPMorgan, of the U.K. data.

The pound GBPUSD, -0.39% dropped after the latest data, while the euro EURUSD, -0.11% was steady. Both reports were released before the U.S. Labor Department said U.S. consumer prices rose 3.2% year-over-year in February.