German inflation hit record high again in May


Consumer prices in the continent’s largest economy rose 8.7 percent in May from a year ago.

German inflation hit another record high, prompting the European Central Bank to step out of crisis-era stimulus measures after figures from Spain also exceeded economists’ estimates.

Driven by rising energy and food costs, data released Monday showed consumer prices in the continent’s largest economy rose 8.7% from a year ago in May. Analysts polled by Bloomberg predicted an increase of 8.1%.

German inflation accelerated to 8.7% in May

The report comes just 10 days before a pivotal ECB meeting, where officials will announce the completion of large-scale asset purchases and confirm plans to hike rates for the first time in more than a decade in July. Some policymakers have even floated the idea of ​​a half-point increase, rather than the quarter-point most of them support.

Money markets are targeting 113 basis points of rate hikes by the end of the year, up three basis points since Friday. German bonds fell, with 10-year benchmark yields up eight basis points at 1.05%.

Inflation figures increase the pressure on the government as households come under further pressure. Treasury Secretary Christian Lindner earlier Monday called the fight against rising prices the “top priority” as he called for an end to expansionary fiscal policy.

“Inflation is a huge economic risk,” Lindner told a news conference in Berlin. “We have to fight it so that there is no economic crisis and a spiral where inflation is self-feeding.”

ECB policymakers, including President Christine Lagarde, have expressed similar concerns, as they are concerned that persistently high price growth risks anchoring and dampening consumption at a time when the industry is suffering from persistent bottlenecks in the economy. supply and uncertainty about energy supplies after the Russian invasion of Ukraine.

Household Pain

While inflation is now approaching its peak, the shortage for households is far from over, according to ZEW economist Friedrich Heinemann.

“Consumers will have to anticipate further price increases as many inputs are still scarce and wholesale prices are still rising dramatically,” he said by email. “Surprisingly good labor market data also indicates that the feared wage-price spiral could accelerate quickly.”

The ECB’s decisions in June will be guided by new economic projections that are likely to show that price pressures in the euro area as a whole remain above the 2% target in 2023 and 2024. May data from the 19-member currency bloc is expected on Tuesday.

Highlighting the lingering dangers, Spain earlier Monday reported an unexpected acceleration in inflation to a record 8.5% despite government support, including a fuel subsidy and an increase in the minimum wage. A Belgian measure also accelerated.

In Germany, the House of Representatives has adopted a package of emergency measures, including a one-off payment, a child allowance and a reduction in electricity costs. Chancellor Olaf Scholz has indicated that further action can be taken if necessary to protect households and businesses.

Negotiated wages in Germany fell 1.8% in real terms in the first quarter, and while iron and steel workers are pushing for gains of more than 8%, they are unlikely to make gains that offset rising costs. of life.

(Updates with Bloomberg Economics in the 11th paragraph.)

–With the help of Kristian Siedenburg, Harumi Ichikura, Birgit Jennen, Zoe Schneeweiss, Alexander Weber and James Hirai.

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