Persisting Inflation Stands at 2.1% - Possible Oil Price Escalation Looms Following Israeli Strike
In a nutshell, Germany's inflation remains stable, thanks to dropping energy prices. According to the Federal Statistical Office, consumer prices increased by 2.1% year-on-year in May— identical to the earlier estimate. Prices spiked by 0.1% between April and May. Ruth Brand, the Statistics Office President, credits this stability to continuously falling energy prices. Meanwhile, food and services costs, too, caused inflation in May.
However, the pleasant energy price trend might be in jeopardy due to the recent Israel-Iran conflict. Oil prices have already begun to rise following Israel's early-morning attack on Iran. If Iran retaliates by obstructing the Strait of Hormuz, through which 20% of global oil is transported, or targeting oil facilities in Saudi Arabia, prices could soar to $100 per barrel. Such a scenario would undoubtedly rekindle inflationary pressure.
Despite the steady rise in food prices, which rose by 2.8% in May, certain food items became more affordable. For instance, olive oil dropped by 17.2%. However, an array of goods like fruit, sugar, jam, honey, and other sweets, dairy products, eggs, chocolate, and butter witnessed price hikes. Services, too, became pricier, with a 3.4% increase. Specific sectors, such as combined passenger transport, insurance, care and social facility services, and stationary health services, underwent significant price increases. core inflation dropped to 2.8%, still slightly beyond the European Central Bank's (ECB) inflation target for the currency area of 2%.
The ECB's monetary guardians have lowered their key interest rate eight times consecutively due to the easing of price pressure. In other economic news, the U.S. and China have been making progress on easing export restrictions, while the stock markets are showing positive signs of recovery post-Middle East conflict.
Written by Rene Wagner, edited by Myria Mildenberger - Contact our editorial team at [email protected] for further inquiries.
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