German inflation fell to 10.0% year-on-year in November, preliminary estimates showed on Tuesday, down from October’s all-time high of 10.4%. The decline was mainly driven by easing energy prices over the past month (38.4% vs 43.0%); however, there was no let-up in the increase of food prices, which ticked up to 21% from 20.3%.

The drop also breaks a 12-month streak of fresh record highs for the CPI. Still, the rate remains uncomfortably high and well above the European Central Bank’s target of about 2%, suggesting that further monetary tightening to combat high inflation is likely.

The ECB has increased interest rates by 200 basis points to 1.5% over the past three months in its fight against inflation. ECB president Christine Lagarde has repeatedly said that taming inflation is one of her priorities and has hinted that policymakers will continue to raise interest rates to a level that would actively slow the economy, as pent-up demand has percolated through the economy since COVID-19 restrictions have been lifted.

Lagarde warned that inflation might not have peaked yet and left open the possibility of further aggressive interest rate increases. She also pointed to the bank’s intention to decide on the key principles for reducing its balance sheet when its governing council next meets in December.

Lagarde also warned governments against being too generous in their efforts to support the economy through what is likely to be a difficult winter, with sky-high energy prices and rising unemployment. Fiscal support, she argued, “should therefore be targeted, tailored and temporary. It should be targeted, so that the size of the fiscal impulse is limited and benefits those who need it most”.

Several ECB officials have indicated that the next interest rate hike may be smaller than the previous two consecutive increases of 75 basis points. The slowdown in the Eurozone has raised the risk that the central bank could tip the economy into a recession by overtightening, despite the ECB having some of the lowest interest rates in the world.

The German economy grew 0.4% in the July-September period compared with the previous quarter supported by robust consumer spending. However, GDP is expected to shrink in Q4 2022 as well as Q1 2023.

Data released on Monday by the ECB showed new lending to households and businesses fell in October, while household deposits rose at their slowest rate since the start of the pandemic. This clearly shows that consumers save less as red-hot inflation bites.