German inflation edges up, as ECB prepares for rate cut

FRANKFURT — German inflation edged up in May, data showed Wednesday, but analysts said it was due to one-off factors and would not deter the European Central Bank from starting to cut interest rates.

Consumer prices in Europe’s largest economy rose 2.4 percent from a year ago, according to preliminary data from federal statistics agency Destatis.

The figure, in line with analyst expectations, was up from 2.2 percent in April, and the first increase in six months.

But closely watched core inflation — which excludes volatile energy and food prices — was unchanged at three percent, despite expectations of a slight increase.

Observers said the uptick in the headline figure was caused mainly by the introduction of a flat-rate public transport ticket, costing just 49 euros ($53), in May 2023, which distorted the year-on-year comparison.

The rise is not expected to deter the central bank for the 20 countries that use the euro from beginning to cut rates at its meeting on June 6, with analysts predicting a quarter-point reduction.

Consumer prices across the eurozone

Elmar Voelker from LBBW bank said the German data suggested inflation across the eurozone had ticked up in May.

But he added that this “will not change anything for the ECB’s decision next Thursday — (policymakers) had already anticipated that the inflation trend would be bumpier from now on,” and they will push ahead with starting to cut.

But they will be keenly watching inflation over the summer months to decide when to push ahead with further reductions, he added.

READ: ECB lays ground for June rate cut as inflation falls

Beginning in mid-2022, the central bank aggressively hiked borrowing costs to tame inflation that soared following Russia’s invasion of Ukraine and amid pandemic-linked supply chain woes.

For the past few months, it has held its key deposit rate steady at a record high of four percent, as it awaits the right moment to start cutting.

In May’s German inflation figures, energy prices continued to fall, dropping 1.1 percent, Destatis said.

Services inflation rose to 3.9 percent, from 3.4 percent in April.

The German government forecasts inflation at 2.4 percent this year, following a 5.9 percent rate in 2023.