Frankfurt The inflation rate in Germany continued to fall slightly in April. Consumer prices increased by 7.2 percent compared to the same month last year. This was announced by the Federal Statistical Office on Friday based on a preliminary estimate.
Economists had previously expected a drop to this level. In March, the rate was 7.4 percent.
The biggest price drivers are still groceries, which rose by 17.2 percent. Energy prices increased by 6.8 percent, services by 4.7 percent. Commerzbank estimates that core inflation – meaning the price increase adjusted for energy and food – fell slightly from 5.9 to 5.8 percent. The German statisticians do not show the value separately. Core inflation is considered an important indicator of the medium-term price trend.
The data from Germany are an important indicator for the development of inflation in the entire euro area. The European statistical office Eurostat will publish the April rate on Tuesday. Before the Council meeting of the European Central Bank (ECB) next Thursday, investors are paying close attention to the new price development figures.
Experts expect the ECB to raise interest rates again – it would be the seventh in a row since the start of the hike cycle in summer 2022. It is unclear, however, whether the monetary watchdogs will raise interest rates by a quarter or half a percentage point.
“We are on the right track with regard to inflation, but there is still a long way to go to stability,” says Dekabank’s chief economist, Ulrich Kater. “The ECB has to stay tuned.”
The chief economist at KfW, Fritzi Köhler-Geib, also emphasizes that “a lot of patience is still required” until inflation returns to the targeted level of two percent. It is therefore “important that the ECB continues to signal determination in the face of stronger wage growth and some positive surprises in economic data”.
Carsten Brzeski, chief economist at Dutch bank ING, said the ECB’s decision on Thursday depends on new data to be released next week. “The next inflation figures for the euro area, the lending data and the latest bank credit survey will be decisive,” he says. This data will be released next Tuesday.
ECB: Different tones from the Council
There were different tones from the Governing Council. Isabel Schnabel, who is a member of the ECB leadership, recently emphasized in an interview with the magazine “Politico” that the size of the rate hike depends on the incoming data. Even an increase of half a percentage point is “not off the table”.
Chief economist Philip Lane, on the other hand, did not comment on the amount of the next rate hike. All he said was that the data indicated that interest rates should be raised further. France’s central bank governor Francois Villeroy de Galhau stressed that the ECB was “most of the way” in tightening monetary policy. “A few more increases may be needed, but I think they should be limited in number and now in scope,” he said.
The ECB chose the last three rate hikes in the range of 50 basis points. Most experts are now assuming a smaller extent. “The latest statements from the ECB tower suggest that the monetary watchdogs could slow down the pace of interest rate hikes,” expects the economist at DZ Bank, Christian Reicherter.
From the point of view of the experts at the US bank Morgan Stanley, the stubborn core inflation in particular speaks for further interest rate hikes. It rose to a new record of 5.7 percent in the euro area in March.
On the other hand, according to Morgan Stanley, the recent turbulence in the banking sector suggests a more gradual approach. The bottom line is that the institute’s experts also expect a small rate hike of a quarter of a percentage point.
More: ECB officials signal further rate hikes – scope open.