German inflation eased further in May, bringing it closer to the European Central Bank’s 2% target and strengthening the case for a rate cut next week, but economic turmoil overshadows hopes for a lasting recovery.
German inflation slowed to 2.1% from 2.2% in April, the federal statistics office reported on today, citing preliminary data harmonised to compare with other European countries.
Analysts polled by Reuters had forecast a reading of 2%.
Germany, the euro zone’s largest economy, published its figures ahead of data for the entire currency bloc on Tuesday.
Euro zone inflation is expected to ease to 2.1% in May from 2.2% in April, according to economists polled by Reuters.
Euro zone inflation is on a downward slope and could already hit the ECB’s 2% target this month on muted wage growth, lower energy prices and a strong currency, justifying another rate cut on June 5.
In fact, economists think inflation will head well below the ECB’s target around the turn of the year, mostly on a statistical base effect, before rebounding back towards 2% later in 2026.
Even further out, tariffs, trade fragmentation and deglobalisation could all prove inflationary, suggesting that the short and the medium-term outlooks are quite different and may require a different policy response.
