German inflation softens enough that it could force ECB’s hand
German inflation has softened in May, according to a preliminary estimate.
Annual CPI has dropped from 1.3 per cent to 0.9 per cent, below analyst expectations of a drop to 1.1 per cent.
It's a number with a lot of significance right now – along with Italy and Spain's inflation release, it makes up more than half of May's flash estimate of Eurozone inflation (due out on Tuesday).
Annual inflation for the currency bloc is expected to have softened further, falling to 0.6 per cent, with core inflation also forecast to decrease, to 0.9 per cent. The European Central Bank has a mandate to keep inflation just below two per cent. 0.6 per cent is very much below, more so than we'd like to see.
It's probably enough to "wash away the last ECB hold-outs against further policy easing", says Berenberg's Christian Schulz. Analysts at Capital Economics say that "May's Eurozone consumer prices figures should provide a final nudge for the ECB to take further policy action at its governing council meeting a couple of days later."
With euro area inflation set to fall further in the coming months, says Capital Economics, "the ECB has more work to do to eliminate deflation worries."
