UPDATE 5-German jobless numbers hit 12-year high, inflation edges up

Analysts polled by Reuters had forecast EU-harmonised inflation remaining unchanged from December at 2.0%. Separately, Labour Office figures on Friday highlighted the lag in the jobs market from the economic stagnation of the last few years, with 177,000 more people out of work in January than in December, bringing the total to 3.08 million.

The number of unemployed people ‌in Germany hit a 12-year high on Friday, surpassing the 3 million mark, while inflation moved back above the European Central Bank's 2% target, clouding the outlook for Europe's largest economy after a stronger-than-expected end to 2025. German inflation unexpectedly nudged slightly higher in January, accelerating to 2.1% year-on-year, ⁠data showed. Analysts polled by Reuters had forecast EU-harmonised inflation remaining unchanged from December at 2.0%.

Separately, Labour Office figures on Friday highlighted the lag in the jobs market from the economic stagnation of the last few years, with 177,000 more people out of work in January than in December, bringing the total to 3.08 million. "The rise in the number of unemployed to more than three million is an alarm ​signal," German Chancellor Friedrich Merz said on social media site X.

"The economic upturn must be this year's central priority." The unemployment rate jumped by 0.4 percentage points to 6.6% in seasonally unadjusted ‍terms. Merz has promised to revive the economy after two years of mild contraction with a sharp increase in infrastructure and defence spending. While the economy as a whole is displaying greater resilience, Merz's measures are taking longer than expected to translate into better conditions on the ground.

SLUGGISH LABOUR MARKET "There is currently little momentum in the labour market," said Labour Office director Andrea Nahles. "At the start of the year, unemployment rose markedly for seasonal reasons."

The picture improved slightly when accounting for ⁠seasonal trends. On ‌that basis, the Labour Office said, the number ⁠of people out of work was unchanged from December at 2.976 million and the seasonally adjusted jobless rate was steady at 6.3%. Analysts and economists in a Reuters poll had predicted a seasonally adjusted rise of 4,000 in the jobless number. The ‍inflation data showed core inflation, which excludes food and energy, was 2.5% in January, up from 2.4% in December, though Commerzbank's senior economist Ralph Solveen said it remains lower than in the fall of 2025, when it ​was fairly stable at around 2.75% .

"The small pick-up in German inflation in January won't worry the ECB too much as it was driven mainly by an increase in food inflation," ⁠said Franziska Palmas, senior Europe economist at Capital Economics, adding that officials would be encouraged by the fact that services inflation, which had picked up towards the end of last year, had eased significantly. German inflation data comes ahead of the euro zone ⁠reading, expected on Wednesday. Economists polled by Reuters expect euro zone inflation at 1.7% for January, down from 1.9% in December.

ECONOMY RESILIENT IN FACE OF TRADE TURMOIL On a positive note, German gross domestic product grew by 0.3% in the fourth quarter compared with the previous three months, beating the consensus forecast of 0.2%. On an annual basis, the Statistics Office confirmed its first estimate of ⁠0.2% growth. Economy Minister Katherina Reiche said Germany must pivot toward new "growth engines", arguing that traditional export strengths "no longer carry our growth". "The biggest domestic risk remains any sudden shift from national depression ⁠to national complacency," said Carsten Brzeski, global head of ‌macro at ING, calling for structural reforms. Germany lowered its growth forecasts for 2026 and 2027 on Wednesday, as fiscal-policy measures have not taken effect as quickly as previously assumed. "The German government's large fiscal package is unlikely to fall on fertile ground, as the vast majority of companies do not believe ⁠in the long-awaited restart in economic policy," said Joerg Kraemer, chief economist at Commerzbank. (Additional reporting by Friederike Heine and Miranda Murray; editing by ‍Mark Heinrich, Hugh Lawson and Gareth Jones)

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