Germany’s economy has gone into reverse, adding another worry to European stability, as Italy escalated its budget dispute with the European Union.

Europe’s largest economy unexpectedly shrank by 0.2 per cent in the three months through September compared with the previous quarter, data published last week by Germany’s statistics agency showed. This was the first quarterly contraction since 2015. The hope is that the setback was due largely to new car emissions tests that temporarily disrupted production.

However, the data are likely to fuel fears that the eurozone’s expansion is running out of steam. Germany’s manufacturing sector, which accounts for almost a quarter of the country’s economic output, may also be feeling the pain of trade tensions and China’s slowdown.

In the meantime, inflation in the UK did not rise as expected in October, figures published last week by the Office for National Statistics show.

Consumer prices rose at an annual rate of 2.4 per cent last month, in line with September’s rate. Economists had expected inflation to rise to 2.5 per cent.

A price war on the high street, especially among food retailers, drove down the cost of weekly purchases and held back consumer inflation. These downward pressures were partly offset by the highest vehicle fuel costs in almost four years and a 2.2 per cent jump in energy bills.

Bank of England policymakers say gradual interest rate hikes will be needed to keep inflation falling toward its two per cent target, assuming a disorderly Brexit is avoided.

Finally in the US, consumer prices increased by the most in nine months in October, underpinned by gains in the cost of vehicle fuel and rents.

The Labour Department said last week that its Consumer Price Index (CPI) rose by 0.3 per cent last month after inching up by 0.1 per cent in September. In the 12 months through October, the CPI increased by 2.5 per cent, picking up from September’s 2.3 per cent increase. The rise in prices was in line with economist estimates.

Inflation pressures are building, partly driven by the lowest unemployment rate in nearly half a century and strong domestic demand. On the other hand, annual wage growth recorded its largest increase in more than nine years in October.

This report was compiled by Bank of Valletta for general information purposes only.