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Germany's inflation rate rose slightly more than expected in April on strong food and energy prices in Europe's biggest economy, dampening investor expectations for a flurry of interest rate cuts this year.
Consumer prices in Germany rose by 2.4% in the year to April, up from a 2.3% rise in the previous month, according to harmonized EU data released by the Federal Statistical Office Destatis on Monday. Economists polled by Reuters had expected it to be flat.
However, excluding basic energy and food prices, Destatis reported that core inflation fell to 3% from 3.3%.
Spain similarly reported a rise in headline inflation and a slowdown in core price growth, and Germany's data gradually undermined investor confidence in the scope of the European Central Bank's interest rate cuts this year.
ING economist Carsten Brzeski said Germany's rise in inflation was “another reminder for the ECB of how difficult the last mile of getting inflation back to 2% sustainably will be.”
Bond yields, which move inversely to prices, rose slightly on the news as investors reduced expectations that the ECB would start cutting interest rates in just over a month. Despite the rise, Germany's benchmark 10-year bond yield remained down nearly 5 basis points to 2.53%.
Senior ECB policymakers will cut interest rates for the first time in five years at their next policy meeting on June 6, as long as wage and price pressures continue to ease in line with the ECB's expectation that inflation will fall to 2%. He said it was highly likely. Goals for next year.
Brzeski said the ECB's June interest rate cut “still looks like a done deal.”
Eurozone inflation is expected to remain flat at 2.4%, while core eurozone inflation is expected to fall to 2.7% from 2.9% when data is released on Tuesday.
Higher-than-expected U.S. inflation has prompted traders to scale back bets on the amount of Federal Reserve easing this year, with an overshoot threatening to cause the ECB to cut interest rates in June. You may have doubts about whether to start.
Latest business and consumer surveys show the eurozone economy is tentatively emerging from recent stagnation, with data on Tuesday showing the region's gross domestic product (GDP) has fallen in the three months to March. The market is expected to expand at a quarterly rate of 0.2%.
However, despite improving economic activity, most economists believe that the fact that Easter this year fell in March rather than April has pushed down the prices of airline tickets and travel packages over the past month, pushing the euro The region's service inflation rate is expected to fall for the first time in six months.
The early arrival of Easter also appears to have contributed to a decline in Germany's services inflation rate, which accelerated to 3.7% in March but has now fallen to 3.4%.
Commerzbank economist Ralf Solben predicted German inflation would rise in the second half of the year “as companies, especially in the service sector, pass on significant wage cost increases to their customers.”
Destatis said energy prices fell 1.2% in April, but the annual decline was much smaller than the 2.7% decline recorded in March, while food prices rose 0.5% following the previous month's decline. .
Spain's Statistics Authority said higher gasoline and food prices after the removal of government subsidies pushed inflation to 3.4% in April from 3.3% the previous month. However, core inflation, which excludes energy and fresh food, slowed to 2.9% from 3.3%.
