Inflation and Interest Rates

Germany's inflation rate stood at 1.9 percent in February 2026, according to the Federal Statistical Office (Destatis). The agency forecasts a significant increase to 2.7 percent for March 2026. The European Central Bank has paused its interest rate cutting phase – the benchmark 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 Federal Statistical Office's forecast. In December 2025, the inflation rate had been 1.8 percent.

Core inflation – which measures price development excluding the volatile components of energy and food – stands at 2.5 percent (as of February 2026). This figure provides insights into underlying price pressure in the economy, as short-term fluctuations in oil or food prices are filtered out.

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

ECB leaves interest rates unchanged

The European Central Bank has ended its phase of interest rate cuts. Since mid-2025, the benchmark rates have remained stable. At its latest interest rate decision, the central bank reaffirmed this stance – no short-term rate steps are expected at present.

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

Despite interest rate cuts in recent years, rates continue to move at a level that is attractive for investors. Current average top day money rates are 3.3 percent per year (as of February 2026). Building finance rates, which follow bond markets and are influenced by ECB benchmark rates, are also at a comparatively favorable level.

US Federal Reserve also holds interest rates stable

The American central bank, the 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 benchmark rate is currently in a range of 3.5 to 3.75 percent.

The Fed's restraint has effects on 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 of an expected 2.6 to 2.7 percent, while at the same time fixed-income investments such as day money or time deposits continue to offer positive real interest rates – albeit narrowly.

The stability of benchmark rates is likely to continue in the coming months as long as inflation does not rise significantly above ECB forecasts. Would-be builders benefit from current conditions, while savers with short-term investments can benefit from day money rates around 3.3 percent.

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