Rachel Moore
BERLIN (Reuters) – German inflation rose slightly more than expected to 2.8 percent in May, but economists said the rise was expected and should not alarm European Central Bank policymakers ahead of their interest rate decision next week.
Analysts polled by Reuters had expected consumer prices to rise 2.7 percent in April from a year earlier, after rising 2.4 percent, based on data adjusted for comparison with other European Union countries.
Ahead of the release of euro zone-wide inflation figures on Friday, economists are focusing on data from Germany, Europe’s largest economy.
The ECB is expected to cut interest rates next week after its biggest-ever rate hike has helped slow inflation to just above its 2 percent target but also triggered a credit crunch.
But officials have said the pace and extent of further rate cuts will depend on the sustainability of low inflation.
In Germany, falling energy and food prices have helped ease inflation this year, but core inflation, which excludes these more volatile components, remains high.
Core inflation stood at 3.0% in May, unchanged from the previous month, according to the Federal Statistical Office.
Base effect ends
Many economists said there was no need to panic after the harmonized inflation rate rose for a second consecutive month.
They noted that the May figures were broadly in line with expectations, partly due to a temporary impact from the end of a discount ticket scheme on the state rail network introduced a year ago.
“We expect inflation to rise, but this will have no impact on the ECB’s decision next Thursday,” said Elmar Voelker, an economist at LBBW Bank.
“The ECB will therefore proceed with its interest rate transformation as planned,” Voelcker said, but added that price trends over the summer would determine the pace of further monetary easing.
But Michael Heise, chief economist at HQ Trust financial institutions, said the ECB faced “difficult choices”.
“Current price trends and forecasts for the coming months do not indicate a clear convergence towards the central bank’s 2 percent target,” he said.
Germany’s economic outlook has brightened somewhat after the invasion of Ukraine painfully cut off energy imports from Russia and sent inflation soaring into double digits.
Germany avoided recession earlier this year, growing 0.2% in the first quarter.
But the pace of recovery remains slow: The German government forecasts economic growth of 0.3% this year and 1.0% in 2025. It sees inflation at 2.4% in 2024.
(Reporting by Rachel Moore; Editing by Andrey Sychev, Madeleine Chambers and Toby Chopra)