German inflation eases slightly

1 July, 2021 12:00 AM printer

FRANKFURT: German inflation cooled slightly in June after hitting a 10-year high in May, preliminary data showed Tuesday, but economists say price growth has yet to peak as Europe’s top economy rebounds from the pandemic.

Consumer prices rose by 2.3 percent year-on-year, federal statistics office Destatis said, dipping below last month’s 2.5 percent when the index reached its highest level since 2011, report agencies.

Compared with May 2021, inflation climbed by 0.4 percent.

The growth was driven mainly by energy prices, which jumped by more than nine percent on the year. Food and service prices grew at a slower clip than in May, Destatis said. The June figures were in line with analyst forecasts.

Economists and policymakers have been at pains to stress that recent inflation surges in Europe and the United States are likely to be transitory, driven mainly by one-off effects linked to post-lockdown reopenings and supply chain bottlenecks. In Germany, prices have also ticked up in part because of the introduction of a carbon tax this year and the end of a temporary sales tax cut introduced to mitigate the economic damage from the health crisis.

But the June inflation figure “is only a brief respite on the way to peak inflation,” warned LBBW bank economist Jens-Oliver Niklasch.

Many economists expect German inflation to reach between three and four percent this year, fuelling debate about when the European Central Bank should start removing some of its vast stimulus for the euro region.

Using the ECB’s preferred yardstick, the Harmonised Index of Consumer Prices (HICP), German inflation jumped by 2.1 percent year-on-year—overshooting the ECB’s inflation target of “close to, but below” 2.0 percent.

ECB chief Christine Lagarde however has repeatedly said that higher inflation in the eurozone lately was mostly the result of “temporary factors” and would not prompt the bank to tighten its ultra-loose monetary policy anytime soon.

 


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