German Inflation At 6-Month Low, Core Figure Accelerates First Time In 4 Months

(RTTNews) - Germany's consumer price inflation slowed for a second straight month in April to its lowest level in six months as energy prices continued to fall, but the core price growth accelerated for the first time since December as services cost growth increased, which warrants caution from the European Central Bank that is set to reduce interest rates further.

The consumer price index rose 2.1 percent year-on-year following a 2.2 percent increase in March, preliminary data from the statistical office Destatis showed on Wednesday. Economists had forecast 2.0 percent inflation for April. Latest inflation was the lowest since October when the rate was at the same level.

ING economist Carsten Brzeski attributed the slowdown to lower energy prices and less of the usual seasonal impact from the Easter break in April. The economist expects trade tensions and fiscal stimulus to influence headline inflation going forward.

Meanwhile, core inflation which excludes prices of food and energy climbed for the first time in four months, rising to 2.9 percent in April from 2.6 percent in March. The core inflation rate was the highest since January when it was the same.

Inflation based on the harmonized index of consumer prices slowed for a third month in a row in April, easing to 2.2 percent from 2.3 percent in March. The rate is the lowest since September when it was 1.8 percent. Economists had forecast 2.1 percent inflation for April.

The CPI rose 0.4 percent month-on-month in April after a 0.3 percent increase in March, which was in line with economists' expectations.

The HICP climbed 0.5 percent from March when the EU measure rose 0.4 percent. Economists were looking for a 0.4 percent increase.

Energy prices slumped 5.4 percent year-on-year, marking the biggest fall since October. Food inflation slowed to 2.8 percent from 3.0 percent. Goods inflation slowed to 0.5 percent from 1.0 percent.

Services inflation accelerated for the first time since December, rising to a three-month high of 3.9 percent from 3.5 percent in March.

Commerzbank economist Marco Wagner said the continued substantial wage increases are likely driving up prices in this labor-intensive sector more strongly than it appeared recently.

The economist expects headline inflation to remain around the same level in coming months as energy prices continue to decline and services cost growth continue to be driven by substantial wage increases.

Flash estimates released earlier on Wednesday revealed that the German economy recovered in the first quarter underpinned by higher private consumption and investment. Gross domestic product grew 0.2 percent sequentially, entirely reversing the 0.2 percent fall in the preceding quarter.

"For the ECB, today's growth and inflation reports clearly pave the way for some additional, though very gradual and measured, rate cuts, without giving any reasons for panic," ING's Brzeski said.