FX.co ★ German Inflation Steady At 2.2%

In April, Germany's consumer prices recorded a steady rate of increase, signifying the persistence of inflation despite the growing disinflationary pressure witnessed over the recent months. The annual growth of the consumer price index remained stable at 2.2 percent, which is lower than the economists' projection of 2.3 percent. This represents the lowest inflation rate since May 2021.

Meanwhile, the EU harmonized inflation edged slightly higher to 2.4 percent, contrary to expectations that it would maintain at 2.3 percent. Data reveals that core inflation, which excludes food and energy, softened to 3.0 percent in April from 3.3 percent in March. On a month-to-month basis, the CPI rose by 0.5 percent, marginally above the anticipated 0.6 percent. Additionally, the harmonized index of consumer prices increased by 0.6 percent, aligning with expectations.

Services grew at a rate of 3.4 percent annually, a decrease from last month's 3.7 percent growth. In contrast, goods prices showed an uptick to 1.2 percent from the previous 1.0 percent. Despite the overall decrease, energy prices fell again in April, albeit at a slower pace - 1.2 percent compared to the previous 2.7 percent. Food prices rebounded by 0.5 percent following a 0.7 percent drop in March.

This data is expected to be validated on May 14th. ING's economist, Carsten Brzeski anticipates this inflation persistence to continue, with the headline inflation in Germany predicted to bounce back to 3 percent in May. Brzeski argues that this upswing in headline inflation underscores the complexity of the European Central Bank's mission to stabilize inflation sustainably back to 2 percent. Nevertheless, he affirms a rate cut at the June meeting still seems to be a foregone conclusion.

The recent surge in oil prices, coupled with the weakened euro exchange rate, could potentially propel the ECB's inflation projection for the upcoming year beyond 2 percent. This would make a case against further interest rate reductions past the June meeting, Brzeski asserts.

A survey from the ifo institute released on Monday revealed that more companies in Germany plan to increase prices in April and it is likely that inflation will remain above the ECB's target of 2 percent in the subsequent months. The ifo price expectations measure climbed to 15.1 points in April from 14.3 points in March. In businesses directly related to consumers, particularly hospitality, games and toys retailers, and drugstores, price expectations rose, states Sascha Mohrle, an economist at the ifo Institute.