Home Economics German inflation slows unexpectedly after economy stagnates

German inflation slows unexpectedly after economy stagnates

German inflation slows unexpectedly after economy stagnates

(Bloomberg) — German inflation unexpectedly eased in April after the economy struggled in early 2023, adding to a mixed bag of data for the European Central Bank to ponder before next week’s interest rate decision.

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Consumer prices rose 7.6% from a year ago – a decline from the March pace of 7.8%, which economists say would be maintained.

The statistics office attributed the slowdown in goods and services. Data from earlier Friday showed that Europe’s largest economy just evaded recession with output flat in the first quarter.

A flurry of updates this week on the health of the euro area has revealed accelerating inflation for France and Spain in April, alongside modest expansion for the euro region’s 20-country economy in the first three months of the year.

Read more: Eurozone avoids recession, but inflation picks up

Economists are predicting a slower walking pace of a quarter point, according to a Bloomberg survey. They see two more such moves, in June and July, pushing the deposit rate to a peak of 3.75%.

Much will depend on inflation and credit dynamics. In Germany, the Bundesbank forecasts that price pressures will continue to ease, due to a decline in energy costs compared to last year. Extraordinarily high increases for food and other goods, as well as services, should also ease, it said in its latest monthly report, though a trend reversal has yet to begin.

Money markets eased bets on the scale of interest rate hikes expected next week, putting the odds of a quarter-point rise at 12% compared to 25% previously. End-interest stakes were also cut slightly, which should push the deposit rate up to 3.72% by September.

What Bloomberg Economics Says…

“What happened to inflation in the Eurozone in April could be crucial to the ECB’s policy decision in May – a big upside surprise to core inflation could put the decision on a 25 or 50 basis point hike on the edge of the economy. put snow. ”

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—Jamie Rush, chief economist of Europe. Click here for the full note

In April, food prices fell sharply from March in the German states, which – unlike the national statistical office – have already published a detailed overview of their monthly data. However, as of a year earlier, food remained one of the biggest drivers of inflation, particularly for low-income households.

Private consumption fell, along with government spending, in the first quarter, as investment and export growth prevented a downturn. The government this week forecast growth of 0.4% for 2023.

–With assistance from Joel Rinneby, Kristian Siedenburg, and James Hirai.

(Market price updates in seventh paragraph)

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