Bavaria CPI

May: -0.2% m/m, +2.1% y/y
April: +0.3% m/m, +2.5% y/y
—
Pan-German CPI

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

April: +0.2% m/m, +2.4% y/y
—

BERLIN (MNI) – Consumer prices in the German state of Bavaria fell
0.2% in May, dampening the annual inflation rate to +2.1% from +2.5% in
April, the state statistics office said Friday.

The monthly result was below the median forecast of a flat reading
for pan-German CPI in an MNI survey of analysts. North Rhine-Westphalia,
Saxony and Brandenburg earlier posted monthly declines of 0.1%, while
Hesse registered a 0.2% drop.

As in the other states, downward pressure on monthly inflation in
Bavaria came from heating oil prices, which dropped 6.8%, and from motor
fuel prices, which dipped 0.1%.

After the end of the Easter holiday period, package holiday tours
prices fell 6.7%. Hotel and restaurant charges were flat on the month.

Food prices rose 0.4%, with seasonal food down 0.7%. Alcoholic
drinks and tobacco products were 0.7% more expensive than a month ago.

Annual inflation was again marked by the surge in energy and food
prices. Heating oil prices rose 17.9% and motor fuel prices were up
13.6%. Food prices climbed 2.2%, with seasonal food down 3.2%.

CPI excluding heating oil and motor fuel fell 0.1% on the month and
rose 1.4% on the year.

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
argued.

For detailed information see data table on MNI MainWire.

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

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