German inflation stays level at 2.1% in May |LAGOS EYE NEWS

Germany’s inflation rate remained at 2.1% in May, the Federal Statistical Office (Destatis) announced on Friday, based on preliminary data.

This follows a drop to 2.1% in April, the lowest level since October.

According to the latest figures, food prices rose more than average, while consumers continued to pay less for energy than they did a year ago.

Energy prices declined by 4.6% year-on-year, following a 5.4% drop in April. Additional relief is expected after the German government’s announcement that it will reduce the electricity tax.

Oil prices remain under pressure due to global economic concerns in light of the US tariff policy. As a result, petrol prices at the beginning of May were lower than at any other point this year.

However, from mid-May, prices for both E10 premium petrol and diesel began to climb again, according to a price comparison by the ADAC motorist club.

Food prices rose more than average again in May, by 2.8%, matching April’s figure, and just below the 3% increase in March.

Meanwhile, inflation in the services sector remains high, including for restaurant visits, package holidays and car repairs. After increasing by 3.9% in April, prices for services in May were still 3.4% higher than they were a year earlier.

Higher wage costs are being passed on more quickly to customers, especially in services with high labour costs.

Overall, consumer prices rose 0.1% from April to May, Destatis reported.

Commerzbank chief economist Jörg Krämer noted that inflation remains persistent. “Excluding volatile energy and food prices, the inflation rate is still well above the ECB’s [European Central Bank’s] target of 2% at 2.8%,” he said.

Data from the EU’s statistics agency, Eurostat, showed that inflation in the eurozone was stable at 2.2% in April, only slightly above the ECB’s medium-term target of 2%.

Lower purchasing power
The higher the inflation rate, the lower people’s purchasing power.

However, monetary policymakers also want to avoid permanently falling prices if possible, to avoid companies and consumers postponing investments in the hope of cashing in on lower prices in the near future, which would slow down the economy.

Further ECB cut expected
Given recent inflation trends, economists expect the ECB to announce its eighth interest rate cut since summer 2024 at its meeting next Thursday.

The deposit rate, which is relevant for savers and banks, could be lowered from 2.25% to 2%.

Germany’s outlook
The development of prices for goods and services in Germany also depends on the outcome of the trade dispute with the United States.

The central bank, or Bundesbank, assumes the rate will fluctuate around the 2% mark in the coming months.

Various forecasts predict that the annual average for 2025 will also be around 2%, slightly below the 2.2% in 2024.

-dpa