Midday Brief – EU inflation data

Financial market digested inflation data from Germany and France this morning and the early European afternoon, with equity markets and the euro currency remaining in a bearish mood despite some optimistic data.

Official data showed that Germany’s consumer price inflation declined to 6.1% year-on-year in May 2023, compared to 7.2% in the previous month and below market expectations of 6.5%, according to a preliminary estimate.

The May inflation rate represents the lowest level since March 2022, partially due to slower increases in both energy and food prices. Energy costs rose by 2.6% in May, easing from the 6.8% increase recorded in April.

Similarly, the price of food advanced by 14.9%, which is lower than the 17.2% increase seen in the previous month. Additionally, services inflation slightly decreased to 4.5% from 4.7% in April.

The EU-standard harmonized index of consumer prices, a measure used for cross-country comparisons, rose by 6.3% in May, marking the lowest level since February 2022.

Despite the recent slowdown in inflationary pressures within Germany, the consumer price inflation rates remained significantly above the European Central Bank’s target of 2%.

The consumer price inflation in France declined to 5.1 percent year-on-year in May 2023, down from 5.9 percent the month before and below market expectations of 5.5 percent, a preliminary estimate showed.

The rate hit its lowest level since April 2022, suggesting a potential slowdown in inflationary pressures within Europe’s second-largest economy. Still, it remained well above the European Central Bank’s target of 2.0 percent.

There were smaller increases in prices of energy (2.0 percent vs 6.8 percent in April), food (14.1 percent vs 15.0 percent), manufactured goods (4.1 percent vs 4.6 percent), and services (3.0 percent vs 3.2 percent). 

Consumer prices in France dropped 0.1 percent from a month earlier in May 2023, following a 0.6 percent increase in April and missing market expectations of a 0.3 percent rise, a preliminary estimate showed. It was the first monthly decline in consumer prices since last December.

Remarks by ECB vice president, Luis de Guindos victory over inflation is not there yet, but he noted that the trajectory is correct and as much as the readings are a positive development for headline annual inflation, core prices are still where the problem is at for the ECB at least for now.