(April 29): German inflation accelerated less than anticipated, supporting the European Central Bank’s (ECB) arguments to defer a decision on raising interest rates due to the Iran war.
Consumer prices rose an annual 2.9% in April after a 2.8% increase in March — falling short of the 3.1% median estimate in a Bloomberg survey. Regional data released earlier suggested a drop in prices for package vacations offset higher fuel and heating costs.
The outcome contrasts with Spain, which recorded an unexpected pick-up in price gains to 3.5%. Data from France and Italy are due on Thursday, along with a reading from the 21-nation eurozone that’s set to show inflation of 3% — the quickest since 2023.
The report is unlikely to prove conclusive for ECB officials meeting in Frankfurt this week to decide whether two months of fighting in the Middle East have jolted inflation sufficiently to require a monetary-policy response.
While economic indicators from business surveys to polls of price expectations are signalling caution, there’s no cast-iron case just yet to lift the deposit rate from its current level of 2%.
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Chief economist Philip Lane summed up the ECB’s position, saying officials probably won’t have clarity this week on the duration or severity of the shock. Economists and traders reckon a quarter-point hike is coming — but in June rather than April.
Whether the ECB will deliver depends chiefly on how peace negotiations evolve — but also on how governments succeed in softening the blow of higher prices at the pump.
In Germany, Chancellor Friedrich Merz’s coalition agreed to temporarily reduce a gasoline tax and allow employers to pay tax-free bonuses, offering €1.6 billion in relief. Finance Minister Lars Klingbeil has warned the country must prepare for a prolonged energy shock, saying the war’s economic consequences will be felt for “some time”.
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