Consumer prices in the continent’s largest economy rose 8.7 percent from a year ago in May.
German inflation hit an all-time high, adding urgency to the European Central Bank’s exit from crisis-era stimulus after Spain’s figures also exceeded economists’ estimates.
Driven by rising energy and food costs, data released on Monday showed that consumer prices in the continent’s largest economy rose 8.7% from a year ago in May. Analysts polled by Bloomberg predict a rise of 8.1%.
The report comes just 10 days before a crucial ECB meeting at which officials will announce the completion of large-scale asset purchases and confirm plans to raise interest rates in July for the first time in more than a decade. Some policymakers have even raised the idea of a half-point rise, rather than the quarter-point that most support.
Money markets were betting rate hikes at 113 basis points at the end of the year, three basis points more since Friday. German bonds fell sharply, with benchmark 10-year yields eight basis points higher at 1.05%.
Inflation figures increase pressure on the government as households become more compressed. Finance Minister Christian Lindner earlier on Monday described the fight against rising prices as the “top priority” while advocating an end to expansionary fiscal policy.
“Inflation is a huge economic risk,” Lindner told a news conference in Berlin. “We must fight to prevent an economic crisis and to install a spiral in which inflation is fueled.”
ECB policymakers, including President Christine Lagarde, have expressed similar concerns, noting that stubbornly high price growth runs the risk of entrenching itself and dampening consumption at a time when the industry is suffering. Persistent supply bottle and uncertainty over energy supply after the invasion of Ukraine by Russia.
Domestic pain
Although inflation is now nearing peak, pressure on households is far from over, according to ZEW economist Friedrich Heinemann.
“Consumers will have to count on further price increases because many inputs are still scarce and wholesale prices continue to rise dramatically,” he said in an email. “Surprisingly good labor market data also indicates that the dreaded wage price spiral could accelerate soon.”
ECB decisions in June will be guided by new economic projections that are likely to show that price pressures across the euro area will remain above the 2% target in 2023 and 2024. May data of the 19-member currency block are due on Tuesday.
Highlighting the persistent dangers, Spain reported on Monday before an unexpected acceleration of inflation to a record 8.5%, despite government aid that includes a fuel subsidy and an increase in the minimum wage. A Belgian measure was also accelerated.
In Germany, the lower house of parliament has approved a package of relief measures that includes a one-time payment, a child supplement and a reduction in electricity costs. Chancellor Olaf Scholz has indicated that more measures can be taken if necessary to protect homes and businesses.
Wages traded in Germany fell 1.8% in real terms in the first quarter, and while workers in the steel industry are pushing for earnings in excess of 8%, they are unlikely to make profits that fully offset the rising cost of living.
(Updates with Bloomberg Economics in paragraph 11.)
– With the assistance of Kristian Siedenburg, Harumi Ichikura, Birgit Jennen, Zoe Schneeweiss, Alexander Weber and James Hirai.