(CTN News) – While the core rate stayed at 3.0%, Germany’s annual inflation rate rose to 2.4% in May, in line with expectations.
The market is expecting the European Central Bank (ECB) to lower interest rates in June, and as a result, consumer confidence has reached its highest point in over two years.
The inflation rate in Germany rose for the first time since 2024 in May.
The Federal Statistical Office (Destatis) released its May 2024 consumer price index data on Wednesday. It showed a 2.4% increase over the same month the previous year. This increase was in line with the expected 2.4% increase and above the 2.2% rate from April.
The monthly inflation rate climbed at the slowest pace since December 2023, at a rate of 0.1%. This is less than the predicted 0.2% growth rate as well as less than the prior 0.5% growth rate.
Services had the most impact on the consumer expenditure basket, rising 3.9% in the last year. Both the food index’s 0.6% annual increase and the energy products index’s 1.1% annual fall were much less than the rate of overall price increases.
Excluding food and energy, the core inflation rate stayed at 3.0%, where it had been since April.
The states’ figures differed; yearly inflation went down in Brandenburg and stayed unchanged in Hesse and Baden-Württemberg, but it went up in Bavaria, Saxony, and North Rhine-Westphalia.
The harmonised index of consumer prices, which is preliminary reading and does not include owner-occupied housing and some other expenses for comparability across the EU, increased from 2.4% to 2.8%, exceeding the 2.7% forecast.
As expected, the harmonized consumer bundle climbed by 0.2% on a monthly basis, down from 0.6% the previous month.
In Germany, customer satisfaction is rising.
On the same day, the GfK released an update on Germany’s consumer sentiment indicator, noting further developments in the run-up to June.
The overall mood among consumers has improved for the fourth straight month. The June prediction shows a climb to -20.9 points, above market forecasts of -22.5 points. This represents a 3.1-point improvement over the previous month (updated to -24.0 points).
The fact that this reading is the highest since April 2022 should not be overlooked.
According to the study, there is a noticeable improvement in Germany’s economic outlook, as indicated by a little rise in income expectations and a significant decline in the propensity to save. That being said, their inclination to buy has only marginally increased.
“The combination of substantial wage and salary increases as well as declining inflation rates enhances consumer purchasing power.” As a result, consumer uncertainty is reduced and income expectations are raised, leading to a relatively high tendency to save in recent months, as stated by Rolf Bürkl, consumer specialist at the Nuremberg Institute for Market Decisions.
Reactions of the market
Following the inflation report, German bond rates remained unchanged.
Following the GfK consumer climate survey, the market rose slightly in the morning. Bund yields rose to 2.65% for the day, a gain of 4 basis points. They are anticipated to reach their highest point since mid-November 2023 by the end of the session.
The DAX index fell 0.9% on Wednesday after falling 0.6% on Tuesday, continuing its downward trend. With decreases ranging from 2% to 3%, Commerzbank, Rheinmetall, Siemens Energy, Infineon, Deutsche Bank, and Porsche AG were the worst performers of the day. Two retailers that did better were Adidas and Zalando, with rises of 1.6% and 1.3%, respectively.
The euro held a steady value of 1.0845 in relation to the US dollar. Policymakers at the European Central Bank have made recent statements that clearly imply a 25 basis point rate drop in June is now certain.
As money markets are currently pricing in a total of 63 basis points of cuts by year’s end, the current expectation is that there will only be two fully-priced rate decreases.
A Reuters survey of 82 analysts indicates that 55 of them believe Frankfurt will carry out two more rate decreases after June of this year.
This month’s preliminary inflation figures will be made available by Eurostat on Friday. Economists predict that the headline index will rise little from 2.4% in April to 2.5% in May, while the core component will rise from 2.7% to 2.8%.
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