German Inflation Unexpectedly Eases From Record High

Germany’s consumer price inflation unexpectedly slowed in June from a record high as the government took measures to reduce the burden of soaring energy prices on households and to reduce fuel consumption, after gas prices surged across Europe following the war in Ukraine.

Consumer price inflation eased to 7.6 percent in June from 7.9 percent in May, preliminary data from Destatis showed on Wednesday. The rate was expected to rise to a new record of 8.0 percent.

Inflation based on the the EU measure HICP slowed to 8.2 percent from 8.7 percent in May. Economists had forecast the rate to advance to 8.8 percent.

Energy prices advanced 38.0 percent from the previous year, roughly similar to the rate seen in the previous month.

Food prices also increased at an above-average pace of 12.7 percent in June after an 11.1 percent rise in the previous month.

Services costs rose 2.1 percent year-on-year following a 2.9 percent climb in May. Rents grew at a steady pace of 1.7 percent.

Destatis said significant price increases at the upstream stages in the economic process and supply chain interruptions due to the Covid-19 pandemic had an upward effect on prices.

In a bid to reduce transport costs and cut the gasoline consumption, the German government launched the EUR 9 monthly ticket for public transport over the three months, starting June 1.

People can travel across the country with the EUR 9 ticket in all modes of public transport, including the state-run railway Deutche Bahn.

“Special effects such as the impact of the 9-euro ticket and the fuel discount are included in the results,” Destatis said.

“It is not possible yet on the basis of the provisional results to show the exact extent of these effects.”

The statistical office is scheduled to release the final results on July 13.

The consumer price index edged up 0.1 percent in June from May. Economists had forecast the monthly rate to ease to 0.3 percent from 0.9 percent in May.

The harmonized index of consumer prices fell 0.1 percent month-on-month in June, in contrast to the 1.1 percent increase in May. Prices were forecast to climb 0.4 percent. 

The drop in headline inflation is mainly the result of the government’s energy relief package which became effective on June 1, ING economist Carsten Brzeski said.

“This is not a turning point – yet – but rather evidence that it is currently governments and not central banks that can bring down inflation,”Brzeski added.

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