2023-06-29 13:35:44
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German inflation accelerated to 6.8 per cent in June, pushed up from 6.3 per cent the previous month by a surge in transport prices after the government reduced its subsidy on tickets for buses and trains.
The rise in Germany offset the news of much lower inflation in Spain, which became the first major eurozone economy to record annual price growth below the European Central Bank’s 2 per cent target in almost two years.
By accelerating more than the 6.7 per cent forecast by economists in a Archyde.com poll, the rise in consumer prices in Europe’s largest economy will put upward pressure on overall eurozone inflation when that data is released on Friday.
The federal statistical office said services prices rose at a new record rate of 5.3 per cent in June, while energy inflation also increased slightly to 3 per cent and food inflation slowed to 13.7 per cent.
The German figures were skewed upwards because of a comparison with last summer, when the government launched a €9-a-month public transport ticket. Transport prices remain higher, although Berlin launched a less subsidised €49-a-month bus and train ticket in May.
Core inflation, which the ECB is watching closely as it strips out volatile energy and fresh food prices to give a better idea of underlying price pressures, rose in Germany to 5.8 per cent, up from 5.4 per cent in May.
While headline inflation is expected to keep falling in the eurozone, the ECB is concerned that tight job markets and rising wages will keep underlying price pressures elevated, particularly in the labour-intensive services sector, reinforcing the need to keep interest rates high.
“June’s inflation figures from Germany won’t change the ECB’s hawkish resolve, even if core inflation edges down in other countries,” said Franziska Palmas, an economist at research group Capital Economics, adding that only “repeated falls” in core inflation would ease rate-setters’ worries.
Spanish inflation fell to 1.6 per cent year on year in June, down significantly from a 2.9 per cent rise a month earlier, with slower increases in fuel, electricity and food and drinks prices driving the change, the country’s statistics institute said. It is the first time Spanish headline inflation has fallen below 2 per cent since March 2021.
The economy ministry in Madrid said the country was “the first big economy in the eurozone to reduce inflation below 2 per cent” since Russia’s full-scale invasion of Ukraine last year sparked a surge in food and fuel prices.
ECB policymakers hope the decline in Spanish inflation is an early indicator of what will happen in the rest of the region, especially as consumer prices in Spain were faster to accelerate than many other countries.
However, Spanish core inflation was 5.9 per cent in June, down only slightly from 6.1 per cent in May.
The figures come as Spain’s Socialist prime minister Pedro Sánchez aims to win a snap general election next month. Sánchez has sought to take credit for Spain’s relatively low inflation, linking it to government fuel subsidies and a policy that cut a link between domestic electricity prices and the gas price elsewhere in Europe.
But Sánchez’s defeat in local and regional polls in May — the trigger for the snap election — suggested his economic message has not resonated with voters.
Eurozone annual inflation is expected to drop to 5.6 per cent in June, from 6.1 per cent last month, when fresh price data is released on Friday — still well above the ECB’s 2 per cent target but down from a peak of 10.6 per cent in October as energy and food prices continue to slow.
But the ECB has said it will keep raising rates until underlying price pressures are clearly dropping and this is not likely to happen in June when core inflation is expected to rise to 5.5 per cent this month, up from 5.3 per cent in May.
In Italy, annual inflation in June was 6.7 per cent, down from 8 per cent in May. France will publish consumer price figures on Friday.
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