Inflation and Interest Rates

Germany's inflation rate stood at 1.9 percent in February 2026, according to the German Federal Statistical Office (Destatis). For March 2026, the office forecasts a significant increase to 2.7 percent. The European Central Bank has paused its interest rate reduction phase – the key interest rates have remained unchanged since mid-2025.

Inflation rises again in spring

The consumer price index shows volatile development at the beginning of 2026. After a value of 2.1 percent in January, the inflation rate fell to 1.9 percent in February, before rising to 2.7 percent in March according to the German Statistical Office's forecast. In December 2025, the inflation rate had been 1.8 percent.

Core inflation – which measures price development without the volatile components of energy and food – stands at 2.5 percent (as of February 2026). This value provides insights into underlying price pressures in the economy, as short-term fluctuations in oil or food prices are excluded.

The ECB expects average inflation of around 2.6 percent for 2026 as a whole. This would put inflation above the central bank's target rate of 2 percent, which the ECB aims for in the medium term.

ECB leaves key rates unchanged

The European Central Bank has ended its phase of interest rate reductions. Since mid-2025, the key interest rates have remained stable. At its last interest rate decision, the central bank confirmed this stance – short-term rate changes are not expected for the time being.

The money markets assume a continuation of this policy. According to Morningstar, they are pricing in an implied interest rate of 1.852 percent for end-2026, which is essentially at current levels. Market participants no longer expect a further rate cut of 0.25 percentage points.

Despite interest rate cuts in recent years, rates continue to move at an attractive level for investors. The average top money market rates currently stand at 3.3 percent per annum (as of February 2026). Construction financing rates, which follow the bond market and are influenced by the ECB's key interest rates, are also at a comparatively favorable level.

US Federal Reserve also keeps key rate stable

The US Federal Reserve is pursuing a similar course to the ECB. At its meetings in January and March 2026, it refrained from further interest rate cuts. The US key interest rate is currently in a range of 3.5 to 3.75 percent.

The Fed's restraint has implications for global financial markets and indirectly influences conditions in the eurozone. A higher interest rate level in the US supports the dollar and can affect capital flows.

Outlook for investors in the DACH region

For private investors in the German-speaking region, the current mix of moderate inflation and stable interest rates represents a phase of relative predictability. Purchasing power is strained by inflation expected to reach 2.6 to 2.7 percent, but fixed-income investments such as money market accounts or fixed-term deposits continue to offer positive real returns – albeit narrowly.

The stability of key interest rates is likely to continue in the coming months, as long as inflation does not rise significantly above the ECB's forecasts. Those planning to build will benefit from current conditions, while savers with short-term investments can profit from money market rates around 3.3 percent.

The ECB will continue to tie its monetary policy closely to inflation developments. Should inflation persist significantly above 2.5 percent, the central bank could reconsider its wait-and-see approach. Conversely, a significant decline in inflation would open room for renewed interest rate cuts.