German inflation slows significantly as ECB rate hikes near end
GERMANY joined its major eurozone peers in reporting a step slowdown in inflation – underscoring arguments by some European Central Bank officials that interest-rate increases are coming to an end.
Consumer prices in the region’s largest economy rose 6.3 per cent from a year ago in May, the Federal Statistics Office said on Wednesday (May 31). That’s down from 7.6 per cent in April and below the 6.7 per cent median estimate in a Bloomberg survey.
The retreat came as fuel and heating-oil costs tumbled, and a cheap, nationwide public-transport ticket was introduced.
Reports this week have already showed inflation rates dropped more than anticipated in France and Spain, with prices in the latter rising by just 2.9 per cent – the weakest in almost two years. While easing too in Italy, the extent of the retreat there was smaller than analysts expected. The 20-nation euro area will publish numbers on Thursday.
The inflation data are a key input into the ECB’s next policy decision in two weeks, when another quarter-point increase in the deposit rate, to 3.5 per cent, is likely amid what’s already an unprecedented barrage of monetary tightening since last July.
More interesting will be the signals as to what happens beyond that. Many officials have embraced market bets for borrowing costs to peak after another move of the same size in July. Some, however, argue that hikes may need to continue to the following meeting, in September, to return inflation sustainably to the 2 per cent goal.
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“I could not say that the victory is there so far,” ECB Vice President Luis de Guindos said earlier Wednesday in Frankfurt. “I think that we are on the correct trajectory and we have to look very carefully at the evolution of core inflation.”
His ECB colleague Madis Muller said there’ll probably be more than one additional quarter-point hike, warning that underlying inflation “unfortunately shows no signs of slowing yet.”
Some respite from soaring prices would be welcome in Germany, where figures released last week showed the economy slipped into its first recession since the start of the pandemic as energy bills jumped during the winter.
The Bundesbank has said the outlook for this quarter is better and some growth may materialise. Despite the challenging backdrop, the labour market has remained robust, with the unemployment rate holding at 5.6 per cent this month, data earlier on Wednesday showed.
Germany will release a full breakdown of its inflation figures on June 13. BLOOMBERG
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