German consumer prices remain steady

Consumer prices in Germany barely rose in May, regional data indicated on Monday, suggesting that an economic upswing, record-high employment and rising real wages still aren't putting pressure on prices in Europe's largest economy.

The euro area has struggled with little or no inflation for the past year, caused mainly by a plunge in oil prices.

The European Central Bank expects the bloc-wide figure to tick up slowly in the coming months, but to stay below its target of just under 2 per cent for some years.

The data from several German states, including North Rhine-Westphalia and Bavaria, the two most populous, showed annual inflation edging up in May, the preliminary data showed.

Consumer prices rose by 0.3 per cent on the year in Bavaria, by 0.2 per cent in North Rhine-Westphalia and by 0.1 per cent in Saxony. They were unchanged in Hesse and Baden-Wuerttemberg and fell 0.2 per cent in Brandenburg.

The state readings will feed into nationwide inflation data due on Monday.

The state data suggested overall German consumer price inflation (CPI) rose 0.2 per cent in May and EU-harmonised inflation (HICP) was around zero, DZ Bank economist Michael Holstein said.

The Reuters consensus forecast was a rise in annual CPI of 0.1 per cent and a decline in HICP of 0.1 per cent.

In April, German consumer prices declined 0.1 per cent and EU-harmonised inflation dropped 0.3 per cent.

“Energy prices fell less sharply on the year than in the previous months,” Holstein said. Higher prices for services also seemed to have pushed up the headline figure, he said.

For the euro zone, economists polled by Reuters expect the inflation rate, due on Tuesday, to fall 0.1 per cent in May, compared with a 0.2 per cent decline in April.

The European Central Bank is expected to leave interest rates unchanged when it meets on Thursday and to reiterate it will implement a surprisingly large stimulus package announced in March.

The measures include purchases of corporate bonds and new so-called TLTRO loans for banks, both beginning in June.

The ECB may also raise some of its inflation forecasts for this year and the next after oil prices rebounded, giving it some breathing space to allow its measures to work their way into the economy.

A Reuters poll published last week showed that a slight majority of economists doubt the ECB will ease monetary policy again this year.

- Reuters