German Inflation Edged Down More Than Expected in June — Update

By Ed Frankl

Inflation in Germany fell more than expected in June, a signal that inflationary pressures are easing more sustainably, likely reassuring the European Central Bank after it cut interest rates for the first time in five years.

Consumer prices were 2.2% higher than in June last year, down from 2.4% in May, German statistics office Destatis said Monday. This was lower than the consensus of 2.3% from economists polled by The Wall Street Journal.

However, services inflation remained at 3.9%, the same as May, and higher than it was in March and April this year, showing underlying price pressures are keeping a floor on some of the decline in inflation.

ECB policymakers have been concerned over high wage rises in the labor-intensive sector. The central bank cut its key interest rate for the first time since 2019 early in June, to 3.75% from 4.0%.

However, the cooling overall inflation should keep the door open to a further ECB rate cut in September, even though wage developments could still motivate some officials to postpone the next rate cut to the winter, according to ING's global head of macro research Carsten Brzeski.

Core inflation, which strips out more volatile energy and food prices, was 2.9% in June, down slightly from 3.0% in May.

Instead, the lower inflation reading was driven by energy prices that declined at a faster rate than in May, though food prices were 1.1% higher in June than in the same month last year, up from 0.6% in May.

Judging by regional data published separately on Monday, there appear to be price drops in clothing via summer sales, alongside healthcare, transport and energy, while prices for hotels and restaurants increased, potentially as a result of the Euro 2024 soccer tournament that concludes in mid-July, Brzeski added.

France and Spain also reported inflation falling in June, while for Italy it held steady, suggesting inflation in the 20-nation eurozone bloc will also have declined in June in data published Tuesday. On an EU-harmonized basis, German inflation was 2.5% in June, from 2.8% in May.

Write to Ed Frankl at edward.frankl@wsj.com

(END) Dow Jones Newswires

July 01, 2024 09:15 ET (13:15 GMT)

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