Saxony CPI

May: -0.1% m/m, +2.3% y/y
April: +0.4% 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 eastern German state of
Saxony dipped 0.1% in May, dampening the annual inflation rate to +2.3%
from +2.5%, the state statistics office said Friday.

The monthly result is below the median forecast of no change for
pan-German CPI in a MNI survey of analysts. On Thursday, the large
western state of North-Rhine Westphalia also reported a monthly CPI
decline of 0.1% for May.

Energy price developments in Saxony were mixed in May. Heating oil
prices dropped 6.2% on the month, motor fuel prices fell 1.0%, while gas
prices rose 0.2% and electricity prices climbed 0.1%.

Food prices rose 1.0%, with seasonal food prices up 2.0%. Alcoholic
drinks and tobacco products were 0.8% more expensive than a month ago.

After the end of the Easter holiday period, packaged holiday tours
fell 6.7%. Airline tickets decreased by 0.4%, while hotel and restaurant
services climbed 0.1%.

Annual inflation was again marked by the surge in energy and food
prices. Heating oil prices rose 16.1%, motor fuel 11.5% and electricity
5.9%, while gas prices were down 1.6%. Food prices climbed 4.0%, with
seasonal food up 4.4%.

CPI excluding energy and seasonal food fell 0.1% on the month and
rose 1.5% 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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