Inflation in Germany, Spain climbs again in May

Germany and Spain on Monday reported another jump in inflation in May as the war in Ukraine continued to push up food and energy prices, heaping pressure on the European Central Bank to speed up interest rate rises.

In Europe’s top economy Germany, the annual inflation rate quickened to 7.9 percent to reach the highest level since reunification in 1990, according to preliminary data from federal statistics agency Destatis.

The last time inflation accelerated at a comparable pace was in West Germany in January 1952.

Spain’s inflation rate hit 8.7 percent year-on-year in May, after slightly cooling to 8.3 percent in April, according to the INE National Statistics Institute.

As in other countries, the increase was driven by soaring costs for energy and commodities despite efforts from the Spanish government to ease the burden on households.

In Germany, Destatis said energy prices rose more than 38 percent in May, while food prices were up 11 percent.

“Energy prices, in particular, have increased considerably since the war started in Ukraine and have had a considerable impact on the high inflation rate,” Destatis said.

“Another factor with an upward effect on prices is interruptions in supply chains caused by the Covid-19 pandemic,” it added.

Analysts surveyed by FactSet had expected a lower inflation rate of 7.7 percent for Germany.

– July rate hike –

Monday’s figures suggest the 19-nation currency club has yet to reach peak inflation, with many European nations highly reliant on Russian gas and oil imports. Heavy Western sanctions against Russia have also added further upheaval to already strained global supply chains.

The latest eurozone inflation data will be released on Tuesday.

In April, eurozone inflation soared to an all-time high of 7.5 percent — well beyond the European Central Bank’s two-percent goal.

The ECB has signalled it plans to hike interest rates in July for the first time in over a decade in a bid to tame inflation, following similar recent moves by other major central banks.

ECB chief Christine Lagarde has said that the bank aims to end negative interest rates by September.

The ECB currently has a bank deposit rate of minus 0.5 percent, meaning lenders pay to park their excess cash at the central bank.

“The ECB has clearly passed the stage of discussing whether and even when policy rates should be increased,” said ING bank economist Carsten Brzeski.

“The only discussion seems to be on whether the ECB should start with a 25 basis point rate hike in July or 50 basis points.”

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