German inflation slows unexpectedly after economy stagnated

GERMAN inflation unexpectedly eased in April after the economy struggled at the start of 2023, adding to a mixed bag of data for the European Central Bank to ponder before next week’s interest-rate decision.

Consumer prices climbed 7.6 per cent from a year ago – down from March’s 7.8 per cent pace, which economists estimated would be maintained.

The statistics office attributed the slowdown in goods and services. Data earlier on Friday (Apr 28) showed Europe’s biggest economy just dodged a recession with flat first-quarter output.

A flurry of updates this week on the euro area’s health has revealed accelerating inflation for France and Spain in April, alongside modest expansion for the euro region’s 20-nation economy in the first three months of the year.

Economists predict a slower hiking pace of a quarter-point, according to a Bloomberg survey. They see two more such steps, in June and July, taking the deposit rate to a peak of 3.75 per cent.

Much will hinge on inflation and credit dynamics. In Germany, the Bundesbank predicts price pressures will continue to slow, reflecting a drop in energy costs from last year. Extraordinarily high increases for food and other goods, as well as services, should ease too, it said in its latest monthly report, though a trend reversal has yet to start.

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In April, food prices fell sharply from March across German federal states, which – unlike the national statistics office – have already published a detailed breakdown of their monthly data. From a year earlier, however, food remained one of the biggest inflation drivers, hurting low-income households in particular.

Private consumption, along with public spending, declined in the first quarter, when growth in investment and exports staved off a downturn. The government this week predicted 2023 expansion of 0.4 per cent. BLOOMBERG