Inflation surges in 3 German states

Preliminary data from three German states indicates a slight uptick in inflation for May, suggesting a potential increase in national inflation for Europe’s largest economy, Reuters reported on Wednesday.

In North Rhine-Westphalia, the inflation rate rose to 2.5 per cent year-on-year, up from 2.3 per cent in April. Bavaria saw an increase to 2.7 per cent from 2.5 per cent, while Saxony rose to 3.1 per cent from 2.7 per cent.

However, there were mixed results as Brandenburg’s rate dipped to 2.9 per cent from 3.0 per cent, while Hesse and Baden-Wuerttemberg remained unchanged at 1.9 per cent and 2.1 per cent, respectively.

Economists polled by Reuters anticipate Germany’s harmonised inflation rate to reach 2.7 per cent in May, up from 2.4 per cent in April. This expected rise is attributed in part to the conclusion of a one-off effect from a discounted national railway ticket scheme introduced in May 2023, which had lowered public transport prices over the past year.

Meanwhile, eurozone inflation is projected to increase to 2.5 per cent in May from 2.4 per cent the previous month, according to economists surveyed by Reuters.

The European Central Bank is closely monitoring these figures as it considers lowering interest rates next week following a series of hikes aimed at bringing inflation closer to its 2 per cent target. However, policymakers have indicated that the pace and extent of further reductions will hinge on the sustainability of lower inflation.

Furthermore, recent data from Germany suggests a brighter economic outlook, with consumer sentiment rebounding for a fourth consecutive month heading into June and real wages registering a record 3.8 per cent increase in the first quarter of 2024.