German state data signals lower national inflation in October

Inflation rates declined in five major German states during October, according to preliminary data released on Friday. The drop in regional price growth suggests the national rate for the euro zone's largest economy will also fall this month.

In Bavaria, the inflation rate fell to 2.8% in October, down from 3.2% in September. North Rhine-Westphalia saw its rate dip to 2.7% from 3.3%, while Lower Saxony dropped to 2.9% from 3.3%. Baden-Wuerttemberg recorded a 0.3 percentage point decline to 2.6%, and Saxony held steady at 2.8%.

Economists polled by Reuters forecast the harmonised national inflation rate in Germany at 3.1% for October, a decrease from 3.3% in the previous month. The official national figures are scheduled for release later on Friday.

The German government expects the national rate to reach 2.7% for the full year and 3.0% in 2027. These projections account for higher energy prices driven by the war in Iran, which has pushed costs up in recent months.

The European Central Bank left interest rates unchanged on Thursday. However, the bank signaled a potential rate hike in December, citing high and rising energy costs as a source of inflation risk.

These state-level figures arrive before the broader euro zone inflation release on Wednesday. Economists polled by Reuters expect the bloc-wide inflation rate to rise slightly to 3.9% in October, from 3.8% in September.