German inflation has fallen to its lowest rate since August 2021, according to recent data from the German statistics office Destatis. The decrease in inflation can be attributed to falling energy prices, which is seen as a potential indication that the European Central Bank (ECB) may have reached the peak of its current rate-hiking cycle.

In October, consumer prices in Germany were 3.8% higher compared to the same month a year earlier, down from 4.5% in September. These figures align with the preliminary estimates previously published by Destatis and a consensus among economists polled by The Wall Street Journal.

The decline in the inflation rate was primarily driven by a 3.2% drop in energy prices year-on-year in October, following a 1.0% increase in September. Fuel prices, in particular, saw a significant decrease of 7.7% compared to the same month last year.

Ruth Brand, President of Destatis, noted that while the current inflation rate remains high when considering medium-term and long-term figures, it has seen a notable decrease. Furthermore, food prices, especially sugar, jam, and honey, continue to rise, with an increase of 13.4% compared to October 2022.

The core inflation rate, which excludes more volatile food and energy prices, dropped to 4.3% in October from 4.6% in September. This decline serves as an indicator of underlying inflation and supports the argument that the ECB has reached the end of its hiking cycle. The focus now shifts to when the ECB will consider reducing its deposit rate from the current 4.0%.

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