German Inflation Rises Amid Boost in Consumer Confidence

Germany's annual inflation rose to 2.4% in May, matching forecasts, with a 0.1% monthly increase. Consumer sentiment improved to -20.9 points, the highest since April 2022, driven by falling inflation and wage increases. The European Central Bank is expected to implement a 25 basis point rate cut in June, with more cuts anticipated by year's end.

Germany's annual inflation rose to 2.4% in May, matching economists' forecasts.

The Federal Statistical Office reported that the consumer price index increased from April's 2.2%.

Monthly inflation advanced by 0.1%, the lowest increase since December 2023.

Services led consumer spending, with a 3.9% year-on-year rise, while energy goods saw a 1.1% decline, and food prices increased by 0.6%.

Core inflation, excluding food and energy, remained steady at 3.0%.

Regional inflation rates varied, with increases in Bavaria, Saxony, and North Rhine-Westphalia, but decreases in Brandenburg and stability in Hesse and Baden-Württemberg.

The harmonised index of consumer prices grew by 2.8%, slightly above expectations.

Consumer sentiment, measured by GfK, improved for the fourth consecutive month, reaching -20.9 points, the highest since April 2022.

This boost is attributed to falling inflation and significant wage increases.

German bond yields remained steady, with a slight rise following the consumer climate update.

The DAX index fell by 0.9%, while the euro remained flat against the dollar.

The European Central Bank is expected to implement a 25 basis point rate cut in June, with more cuts anticipated by the end of the year.

Eurostat will release further inflation data on Friday, with expectations of a slight increase in both the headline and core components.