Inflation dips in Germany, jobless rises less than expected in May

Inflation eased in five economically important German states in the month of May, preliminary data showed on Wednesday, suggesting that national price rises are set to slow to their lowest in more than a year.

The inflation rate in North-Rhine Westphalia fell to 5.7 per cent, while in Bavaria it slowed to 6.1 per cent, in Brandenburg to 6.3 per cent, in Hesse to 5.9 per cent and in Baden-Wuerttemberg to 6.6 per cent.

In April, inflation rates for those five states, out of 16 in Germany, had been between 6.8 per cent and 7.6 per cent.

National inflation data will be published at 1200 GMT, with economists surveyed by Reuters forecasting a 6.5 per cent year-on-year rise. That would be the lowest level since April 2022.

Inflationary pressure has been eased by a new subsidised travel ticket, covering all local public transport for 49 euros ($54) per month.

Furthermore, the base effects from high energy and food prices in May 2022 will disappear from the year-on-year comparison.

National data so far suggests that eurozone inflation may have dropped more than expected in May and even underlying prices may have ticked down, supporting arguments for only cautious European Central Bank rate hikes in months ahead.

“Clearly the decline has been bigger than what was discounted by analysts and I think that is positive news,” ECB vice president Luis de Guindos said on Wednesday.

The ECB has lifted rates by a record 375 basis points over the past year and has already committed to another move in June, leaving only subsequent tightening up in the air.

While many policymakers, including the influential chiefs of the German and Dutch central banks, have also put a July rate hike on the table, few if any are willing to discuss policy beyond that, arguing that inflation developments, particularly for core prices, will be key.

Core inflation, which filters out volatile food and fuel prices, has been stubbornly high in recent months, driven by increasingly rapid wage growth in services, and trends suggest that a major turnaround is likely only in the autumn.

German unemployment rose less than expected in May, showing resilience in the labour market despite difficult economic conditions, labour office figures showed on Wednesday.

The Federal Labour Office said the number of people out of work increased by 9,000 in seasonally adjusted terms to 2.573 million. Analysts polled by Reuters had expected that figure to rise by 15,000.

“The increase in claims in May marks the fourth straight rise, but it was also the slowest in three months, suggesting the rising trend in these figures has slowed,” said Melanie Debono, senior Europe economist at Pantheon Macroeconomics.

The seasonally adjusted jobless rate remained stable at 5.6 per cent.

“Despite a weak economy, the labour market is steady overall,” said Daniel Terzenbach, head of the regions at the Labour Office.

Debono expects the unemployment rate in Germany to hold broadly steady over the coming months.

Compared with May 2022, the number of unemployed is 284,000 higher.

Even without taking into account Ukrainian refugees, unemployment would have risen year-on-year, albeit less sharply, the labour office said.

In May, there were 767,000 job openings, 98,000 fewer than a year ago. Although the Federal Labour Office has seen a slowdown in labour demand in the last year, it remains at a high level.