Berlin:Germany's economy likely stagnated in the third quarter as rising energy costs weighed on households, while September inflation reached its highest level since late 2023, the Bundesbank reported on Wednesday.

According to Anadolu Agency – English, the central bank attributed the pause in recovery partly to temporary factors, including low Rhine water levels and effects linked to fuel-tax relief. High energy prices have dampened household purchasing power, and weakness in the automotive sector has contributed to reduced industrial production in August, exacerbated by factory holidays concentrated in that month.

Low water levels in the Rhine have disrupted shipping and increased transport costs for energy-intensive industries, such as oil refining and chemicals, negatively impacting foreign trade. Despite these challenges, construction output saw an increase in August; however, rising mortgage rates are expected to constrain further activity.

Annual harmonized inflation rose to 3.3% in September from 2.9% in August, driven by the Middle East conflict's impact on energy prices. The Bundesbank anticipates that inflation will remain elevated, with energy costs increasingly impacting industrial goods, food, and services.

The expiration of fuel-tax relief and a health reform raising patient payments for medicines and hospital services in early 2027 are expected to add further inflationary pressure in the future.