German inflation tumbles in May

Inflation in Europe’s largest economy Germany fell back sharply in May, official data showed, returning to sluggish levels after a spike related to the Easter holiday.

Price growth stood at 1.4 per cent year-on-year, federal statistics authority Destatis said in preliminary figures, some 0.6 percentage points lower than in April.

Most of the items like food, energy and goods that feed into the inflation index saw relatively stable price growth compared with last month. But services inflation plummeted, from 2.1 per cent in April to just 1.2 per cent in May.

Analysts had last month noted that higher April inflation was mostly due to a late Easter pushing up prices for package holidays.

Price growth data for individual states like Hesse and Bavaria showed a massive slump in prices for all-inclusive trips this month.

April’s 2.0-percent inflation reading had marked a rare moment of inflation being bang on the European Central Bank’s target for industrial powerhouse Germany.

Despite years of ultra-low interest rates and 2.6 trillion euros ($2.9 trillion) in stimulus, the Frankfurt institution has struggled to meet its price stability target of inflation close to, but below 2.0 per cent across the 19-nation eurozone.

Price growth was just 1.3 per cent in Germany in May when measured using the Harmonised Index of Consumer Prices, the ECB’s preferred yardstick. Germany’s benchmark 10-year bond yield fell to within striking distance of record lows on Friday, after US President Donald Trump’s threat to impose tariffs on Mexican goods heightened recession fears and rattled world markets.

The global outlook darkened further when a key measure of Chinese manufacturing activity in May disappointed.

Agencies