- Germany's EU-harmonised inflation eases to 2.7%
- Decline in headline figure due to slowdown in energy prices
- Core inflation rises to 2.5% in May from 2.3% in April
BERLIN, May 29 (Reuters) - German inflation slowed in May due to lower energy prices, and while core inflation accelerated, analysts said that was likely not evidence that cost pressures resulting from the Iran conflict were spreading across the broader economy.
Inflation fell to 2.7% from 2.9% in the previous month, preliminary data from the national statistics office showed on Friday.
Analysts polled by Reuters had forecast the EU-harmonised consumer price index to come in at 2.8%.
The decline in the headline figure was driven by an easing of the energy inflation rate to 6.6% in May from 10.1% in April, the result of a reduction in taxes on fuel introduced by the government to mitigate war-linked price increases.
Had those taxes remained unchanged, Capital Economics estimated headline inflation would have increased to 3.0%.
NO SIGNS OF INDIRECT EFFECTS FROM HIGH ENERGY PRICES...YET
Core inflation, which excludes volatile food and energy prices, meanwhile rose to 2.5% in May from 2.3% in April.
"At first glance, the rise in the core inflation rate raises the suspicion that we are seeing the first indirect effects of energy prices ... on the prices of other goods and services," said Ralph Solveen, senior economist at Commerzbank.
However, he said the increase was more likely the result of the one-off effect of higher package tour prices, rather than evidence of broader fallout from continued high energy costs.
"At least the figures available today – most details will not be published until mid-June – provide no evidence of this," Solveen said.
Services inflation rose to 3.1% from 2.8% in the previous month.
That was primarily an Easter timing effect and was still lower than in February, when it was at 3.2%, said Jack Allen-Reynolds, deputy chief euro zone economist at Capital Economics.
The German data comes ahead of the euro zone inflation release on Tuesday. Inflation in the bloc is expected to come in at 3.3% in May, up from 3.0% in the previous month, according to economists polled by Reuters.
The European Central Bank kept interest rates on hold at its meeting in April, but a further increase in inflation is making it very likely that the bank will follow up earlier warnings with policy action next month.
It is too early for the official inflation data to show evidence of indirect or second-round effects from higher energy prices, said Allen-Reynolds.
"But firms’ selling price expectations, which ECB policymakers are watching closely, have risen sharply since February, suggesting that the increase in inflation will spread beyond fuel in the coming months," he added.
Reporting by Ludwig Burger and Madeline Chambers; Writing by Maria Martinez; Editing by Friederike Heine
Source: Reuters