Flash May HICP: -0.2% m/m, +2.4% y/y

MNI median forecast: +0.1% m/m, +2.7% y/y
MNI forecast range: -0.2% to +0.4% m/m

Final Apr HICP: +0.3% m/m, +2.7% y/y
Flash May CPI: flat m/m, +2.3% y/y

MNI median forecast: flat m/m, +2.3% y/y
MNI forecast range: -0.3% to +0.2% m/m

Final Apr CPI: +0.2% m/m, +2.4% y/y

BERLIN (MNI) – German consumer prices in May were flat on the month
in national terms and fell 0.2% in EU-harmonized terms, which dampened
annual inflation rates to +2.3% from +2.4% for CPI and to +2.4% from
2.7% for HICP, the Federal Statistical Office (FSO) estimated Friday.

The median forecasts in a MNI survey of analysts were for a flat
monthly reading of CPI and a 0.1% rise of HICP.

As usual, the Federal Statistics Office provided no details on
price developments with the flash release.

Data from reporting states showed that energy price developments
were mixed in May. Heating oil prices and motor fuel prices fell, while
gas prices and electricity prices rose. Food was also more expensive
than a month ago.

After the end of the Easter holiday period, prices for package
holiday tours fell, while hotel and restaurant services were more

Annual inflation was again marked by the surge in energy and food

Analysts fear that businesses will increasingly pass on their high
input costs, driven by the spike in energy prices. They point to a broad
increase of selling price expectations.

Some analysts already warn that inflation will remain above 2% over
the medium term. They see increasing risks of second-round-effects in
Germany due to the high level of capacity utilisation, which will exert
upward pressure on wages.

European Central Bank President Jean-Claude Trichet said Thursday
that “in most recent months, with the overall recovery more firmly
established, we have witnessed the emergence of upside risks to the
medium-term outlook for price stability” in the Eurozone.

Rapid increases in oil and other commodity prices have had a strong
impact on headline inflation, Trichet remarked. “We have to avoid
commodity price increases becoming entrenched in longer-term inflation
expectations, which could have second-round effects on wages and
prices,” he stressed.

ECB Governing Council member Jens Weidmann said Monday that the
rise of long-term inflation expectations in the Eurozone last month had
to be taken seriously.

The Bundesbank president reiterated that a temporary inflation rise
due to rising energy and commodity prices is in itself no reason for the
ECB to react.

“Yet, we have to watch carefully whether this results in
second-round-effects,” the Governing Council member stressed. “We must
also eye the increasing upside risks [for inflation] in the course of
the economic recovery.”

“Against this background, the rise in long-term inflation
expectations in April have to be taken seriously and are a sign of a
clouding price outlook with an expansive monetary policy,” Weidmann

–Berlin bureau: +49-30-22 62 05 80; email: twidder@marketnews.com

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