Inflation in three German states inched up in May, preliminary data showed, suggesting that national inflation in Europe’s biggest economy may rise slightly, although price growth did decline in one state. The inflation rate in North Rhine-Westphalia, Germany’s most populous state, rose to 2.5 per cent year-on-year in May from 2.3 per cent in April. In Bavaria, the rate was up in May at 2.7 per cent from 2.5 per cent and in Saxony it rose to 3.1 per cent from 2.7 per cent.
However, the figures were mixed as in Brandenburg the rate nudged down to 2.9 per cent from 3.0 per cent. In Hesse and Baden-Wuerttemberg the rate stayed flat at 1.9 per cent and 2.1 per cent respectively.
Economists’ Forecasts and Factors
Economists polled by Reuters forecast Germany’s harmonised inflation rate at 2.7 per cent in May, up from 2.4 per cent in April. The expected rise is due in part to the end of a one-off effect of a cheap national railway ticket scheme introduced in May 2023 that has lowered public transport prices over the last year, said economists.
Euro zone inflation is expected to edge up to 2.5 per cent in May from 2.4 per cent the previous month, according to economists polled by Reuters.
ECB’s Next Moves
The European Central Bank will be scrutinising that figure as it looks set to lower interest rates next week after its biggest ever streak of hikes brought down inflation to just above its 2 per cent target. However, policymakers have said the pace and scope of further reductions will depend on the durability of lower inflation.
Euro zone consumers reduced their inflation expectations last month, an ECB survey showed on Tuesday.
Signs of Economic Recovery
In Germany, data has offered signs of a brighter economic outlook with consumer sentiment recovering for a fourth month in a row heading into June and real wages rising by a record 3.8 per cent in the first three months of 2024.
