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Fall in German Inflation

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Fall in German Inflation

A strong clue to the ongoing inflation situation in the Eurozone has been presented in the form of German consumer price data this morning. The headline Consumer Price Index (CPI) has fallen year on year from 1.3% to 0.9% for the month of May, this move was in line with market expectations. The month on month number has improved slightly however it still remains negative at -0.1%, this is what the market was expecting and it is moderately higher than the -0.2% experienced in April.

The Harmonized Index of Consumer Prices, the method used to calculate Eurozone inflation, has also fallen in Germany this month. As expected the year on year reading is now 0.6% compared to April’s 1.1%. The month on month number remained at -0.3% and no real change was anticipated in this.

Today’s figures are confirmation of the preliminary data received earlier in the month and represent a substantial fall off in the rate of consumer price growth within the Eurozones largest economy. This reading is the lowest that Germany has seen in over four years. Falling energy prices during the month have contributed somewhat to the lower than normal inflation readings but is not seen as the entire reason for a slow down in the rate of consumer price growth.

Likewise unexpectedly mild weather and the timing of the Easter holiday has affected the seasonal tourism industry particularly in the alpine south of the country that benefits from much winter sports tourism. Again this is a contributing factor to price moderation but is not the overriding reason for a slowing of activity in the German economy.

In all likelihood there is an element of convergence creeping into the Eurozone, the reluctance of other member state economies to gain growth traction is leaving Germany with limited trade potential and this is weighting on the services and particularly the manufacturing sector.

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