German Inflation Slows Significantly as ECB Hikes Near End
Germany joined its major euro-zone peers in reporting a steep slowdown in inflation — underscoring arguments by some European Central Bank officials that… The German economy has seen a sharp drop in inflation rates, with prices rising by just 2.9% and fuel and heating-oil costs tumbling. The 20-nation euro area will publish numbers on Thursday, a key input into the ECB’s next policy decision in two weeks, when another quarter-point increase in the deposit rate is likely to be announced. The yield on Germany's 10-year benchmark note has tumbled almost 30 basis points to 2.26%, and the labor market has remained robust, with the unemployment rate holding at 5.6% this month. Germany will release a full breakdown of its inflation figures on June 13.
Published : 2 years ago by Bloomberg News in Business
Sign up to receive daily headline news from Regina Leader-Post, a division of Postmedia Network Inc.
• There was an error, please provide a valid email address. Thanks for signing up! A welcome email is on its way. If you don't see it, please check your junk folder. The next issue of Regina Leader Post Headline News will soon be in your inbox. We encountered an issue signing you up. Please try again
The retreat came as fuel and heating-oil costs tumbled, and a cheap, nationwide public-transport ticket was introduced. Reports this week have already showed inflation rates dropped more than anticipated in France and Spain, with prices in the latter rising by just 2.9% — the weakest in almost two years. While easing too in Italy, the extent of the retreat there was smaller than analysts expected. The 20-nation euro area will publish numbers on Thursday. The inflation data are a key input into the ECB’s next policy decision in two weeks, when another quarter-point increase in the deposit rate, to 3.5%, is likely amid what’s already an unprecedented barrage of monetary tightening since last July.
More interesting will be the signals as to what happens beyond that. Many officials have embraced market bets for borrowing costs to peak after another move of the same size in July. Some, however, argue that hikes may need to continue to the following meeting, in September, to return inflation sustainably to the 2% goal. “I could not say that the victory is there so far,” ECB Vice President Luis de Guindos said earlier Wednesday in Frankfurt. “I think that we are on the correct trajectory and we have to look very carefully at the evolution of core inflation.” His ECB colleague Madis Muller said there’ll probably be more than one additional quarter-point hike, warning that underlying inflation “unfortunately shows no signs of slowing yet.”
The yield on Germany’s 10-year benchmark note headed for its biggest weekly decline in more than two months as traders digested the numbers from across the continent. Since Friday’s close, it’s tumbled almost 30 basis points to 2.26%. Traders are no longer pricing a full 50 basis points of cumulative rate increases by the ECB, with markets pointing to the deposit rate peaking just below 3.75% by September. Some respite from soaring prices would be welcome in Germany, where figures released last week showed the economy slipped into its first recession since the start of the pandemic as energy bills jumped during the winter. The Bundesbank has said the outlook for this quarter is better and some growth may materialize. Despite the challenging backdrop, the labor market has remained robust, with the unemployment rate holding at 5.6% this month, data earlier Wednesday showed. Germany will release a full breakdown of its inflation figures on June 13. Read this next: Europe’s Economic Engine Is Breaking Down
Topics: Inflation