By Ed Frankl
German inflation climbed a little in May, signaling that there remain bumps in the path ahead to the European Central Bank's 2% target, despite price increases cooling in recent months.
Consumer prices were 2.4% higher than in May last year, and above the 2.2% reported in both March and April, German statistics office Destatis said Wednesday. It was, however, slightly below the 2.5% expected by a consensus of economists polled by The Wall Street Journal.
The uptick comes after inflation was at the lowest level since May 2021 in the last two months.
This month's reading was driven primarily by services inflation, which climbed to 3.9% in May from 3.4% in April, largely down to base effects from a discounted public-transport ticket introduced in May 2023 dropping out of annual comparison.
Still, underlying pressures remain strong, with core inflation--which strips out more volatile energy and food prices--higher than the headline rate at 3.0% in May, the same as the prior month.
The persistently strong services inflation, which will likely be driven too by higher wages in the coming months, should mean the core rate stays close to its current level, well above the ECB's target, Commerzbank senior economist Ralph Solveen said in a note after the inflation data release.
The acceleration in prices will keep ECB policymakers on their toes ahead of their key meeting on June 6, when the central bank has indicated it will cut its deposit rate to 3.75% from 4%.
But the timing of monetary easing beyond that this year will depend on how rapidly prices and wages cool, with any slowdown likely to be "bumpy", Dutch central bank chief Klaas Knot said Tuesday.
Inflation statistics for the eurozone as a whole are due to be published on Friday. On a harmonized basis, German annual inflation rose for a second-straight month, to 2.8% in May, up from 2.4% in April.
Write to Ed Frankl at edward.frankl@wsj.com
(END) Dow Jones Newswires
05-29-24 0906ET
