Germany's adjusted consumer price index fell to 1.8% in September, lower than expected, according to preliminary data from the country's statistics office, Destatis, released on Monday.
The CPI figure for September is expected to be at 1.9% based on a Reuters poll. In August, the harmonized CPI surprisingly dropped to 2%.
On a monthly basis, the initial CPI fell by 0.1%. A Reuters poll showed that the monthly reading was expected to be unchanged.
Germany's CPI figure was last time below 2%, which is the European Central Bank's inflation rate target in February 2021, based on LSEG data.
Inflation readings in the European region and within the European Union to ensure uniformity of comparison.
Core inflation, which excludes food and energy costs, was at 2.7% for September, slightly below the 2.8% reading in August. Services inflation decreased to 3.8% after staying at 3.9% for several months.
Data from the statistics office also showed that energy costs declined by 7.6% in September.
Sebastian Becker, economist at Deutsche Bank Research, said in a note on Monday that inflation may pick up again towards the end of the year as base effects are expected to ease or even reverse.
"The problem of inflation has not been fully resolved with today's figures. For that, the still high core inflation rate also needs to drop significantly. And the decrease has not yet happened," he said.
Continued wage pressures mean service and core inflation will probably only come down slowly, Becker said.
Data released earlier on Monday showed that inflation eased in several key regions of Germany in September, with the reading in the most populous state, North-Rhine Westphalia, easing to 1.5% in September, from 1.7% in August.
In Europe, data published last week showed that harmonized inflation rates in France and Spain fell below the 2% target in September.
The German figure comes a day ahead of the release of flash inflation data for the European region, which will be closely watched by investors as an indication of possible further interest rate cuts from the European Central Bank. Earlier this month, the bank implemented its second interest rate reduction for the year.
Carsten Brzeski, head of global macro at ING, said on Monday that the German data was "another strong indication" of interest rate cuts to be discussed when the ECB meets in October.
"The latest series of disappointing economic sentiment indicators and lower-than-expected inflation data have provided new strong indications to support interest rate cuts in the ECB," he said.
