German inflation back in black ahead of ECB meeting

30th May 2016, Comments 0 comments

Inflation in Germany was back in positive territory in May on the back of rising prices for rents and services, data showed on Monday, in a welcome development for the European Central Bank ahead of its policy meeting later this week.

Nevertheless, the rate of inflation in Europe's biggest economy is still a long way below the ECB's target, analysts noted.

The federal statistics office Destatis calculated that Germany's national inflation yardstick, the consumer price index, edged up by 0.1 percent in May after falling by 0.1 percent the previous month.

Using the Harmonised Index of Consumer Prices (HICP) -- the barometer used by the European Central Bank -- the inflation rate stood at zero percent in May after minus 0.3 percent in April.

The inflation data were a preliminary flash estimate calculated from consumer price data for six of Germany's 16 regional states.

Final data based on all 16 states will be published on June 10.

Analysts said the fact that Germany has exited deflation -- the term used to describe falling prices -- would likely be welcomed by the ECB, which is holding its regular policy meeting on Thursday.

The data were "good news for the ECB," said Natixis economist Johannes Gareis.

"Still, today's report won't have a big impact on the outcome of this week's ECB meeting this week as the bank is still far away from its target."

The ECB calculates that annual inflation rates of close to but just below 2.0 percent are most conducive to healthy economic growth.

Its governing council, meeting in Vienna instead of its home venue of Frankfurt, is not expected to announce any new stimulus measures as it continues to implement the range of measures announced in March.

Commerzbank economist Marco Wagner said the tentative pick-up in inflation was largely because energy prices fell less steeply than in April.

"From autumn onwards, energy prices in particular should drive the inflation rate upwards. An accelerating core rate of inflation on the back of rising wages should also contribute to this development," Wagner predicted.


© 2016 AFP

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