German inflation rises to 2.8% in May

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By Rachel More

BERLIN (Reuters) -German inflation rose slightly more than expected to 2.8% in May, preliminary data showed on Wednesday, a sign that price pressures remain present in Europe’s largest economy.

Analysts polled by Reuters had forecast a reading of 2.7%, after a year-on-year increase in consumer prices of 2.4% in April, based on data harmonised to compare with other European Union countries.

Economists will pay close attention to the data ahead of the release of inflation figures from the wider euro zone on Friday.

The European Central Bank looks set to lower interest rates next week after its biggest ever streak of hikes brought down inflation to just above its 2% target but also choked off credit.

However, policymakers have said the pace and scope of further reductions will depend on the durability of low inflation.

In Germany, cooling energy and food prices have had an easing effect on inflation this year – but core inflation, which excludes those more volatile elements, has remained high.

In May, core inflation was 3.0%, the federal statistics office said, unchanged on the previous month.

Germany’s economic outlook has brightened somewhat following the painful severing of Russian energy imports in the wake of the Ukraine invasion which sent inflation soaring into double-digit territory.

At the start of this year, Germany skirted a recession with 0.2% growth in the first quarter.

But the rate of recovery remains slow. The German government has forecast economic growth of 0.3% this year and 1.0% in 2025. It expects a 2024 inflation rate of 2.4%.

Hopes are growing that consumer spending could deliver a much-needed boost to the German economy, as consumer sentiment recovers and data showed a record 3.8% rise in real wages in the first quarter.

(Reporting by Rachel More, editing by Andrey Sychev, Madeline Chambers and Toby Chopra)

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