German Inflation Slows To 6.2% In July

Germany’s consumer price inflation eased in July after accelerating in the previous month, mainly due to slower growth in food prices and services, preliminary data from the statistical office Destatis showed Friday.

The consumer price index rose 6.2 percent year-on-year following a 6.4 percent increase in June. That was in line with economists’ expectations.

Excluding food and energy prices, the core CPI rose 5.5 percent annually after a 5.8 percent climb in the previous month.

Services inflation slowed to 5.2 percent from 5.3 percent. The base effect due to the availability of the 9-euro ticket from June through August 2022 still has an impact on service prices, Destatis said.

Food prices rose an above-average 11.0 percent year-on-year, which was slower than the 13.7 percent increase in the previous month.

Energy inflation accelerated to 5.7 percent from 3.0 percent, mainly due to a base effect caused by a decline in July 2022 that was due to the abolishment of the EEG surcharge as part of the Federal Government’s third relief package, Destatis said.

Compared to the previous month, consumer prices rose 0.3 percent in July, the same as in June and in line with expectations.

Inflation based on the harmonized index of consumer prices, or HICP, also slowed in July, down to 6.5 percent from 6.8 percent in June. Economists had forecast 6.6 percent inflation.

On a month-on-month basis, the EU measure of inflation rose 0.5 percent in July after a 0.4 percent climb in June. The rate of increase matched expectations.

“With still lower-than-expected energy prices, dropping food prices and fading pipeline price pressures in both services and manufacturing, German and eurozone inflation could come down faster than the ECB expects, at least after the summer,” ING economist Carsten Brzeski said citing the regional inflation data that were released ahead of the Destatis data for the whole country.

The economist said it is likely that the services inflation is at the last leg, mainly in tourism. ING expects German headline inflation to fall to around 3 percent towards the end of the year.

The German economy stabilized in the second quarter as private consumption helped to halt the recession, official data showed earlier on Friday.

Gross domestic product remained flat in the second quarter, following a 0.1 percent drop in the first quarter and 0.4 percent decline in the fourth quarter of 2022, Destatis reported. GDP was expected to climb 0.1 percent.

Destatis said household spending stabilized in the second quarter after the weak winter half-year.
The European Central Bank raised its interest rates by a quarter basis points on Thursday as inflation is still expected to remain too high for too long.

However, ECB President Christine Lagarde said policymakers are having an open mind regarding future policy decisions and that they will stick to a data-dependent approach.

This and the omission of the earlier wording that there was more ground to cover in the battle against inflation have triggered speculation that the ECB is headed for a pause in the rate hike cycle as soon as in September.

“The faster the worsening of the growth outlook and the disinflationary trend will be, the higher the chance of a pause, but also vice-versa,” Brzeski said.

The International Monetary Fund this week projected the German economy to shrink 0.3 percent this year before rebounding 1.3 percent in 2024.

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