German inflation rose above expectations in May

The preliminary data indicating a slight rise in German inflation to 2.8% in May, higher than the forecasted 2.7%, signals persistent price pressures in Germany, the EU’s largest economy.
This uptick follows a 2.4% increase in consumer prices in April, measured using the harmonized index for EU comparisons.

Economists are closely monitoring these developments, especially with the broader euro zone inflation figures due soon.
The European Central Bank (ECB), having significantly hiked interest rates to tame inflation near its 2% target, is poised to consider rate cuts next week. However, the continuation of rate reductions will hinge on whether low inflation proves sustainable.

In Germany, the easing of energy and food prices has helped curb overall inflation, but core inflation – excluding these volatile items – remains high at 3.0%, unchanged from the previous month.
The country’s economic outlook has slightly improved after mitigating the impacts of cutting off Russian energy imports post-Ukraine invasion, which had previously pushed inflation to double digits.

Germany narrowly avoided a recession with a 0.2% GDP growth in the first quarter of this year. Despite the slow recovery, the German government projects an economic growth of 0.3% for 2024 and 1.0% for 2025, with an expected inflation rate of 2.4% in 2024.

Consumer spending is hoped to bolster the economy, driven by a recovery in consumer sentiment and a notable 3.8% rise in real wages in the first quarter.