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German inflation surpasses ECB target in June

German inflation surpasses ECB target in June
By Reuters
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BERLIN (Reuters) - German inflation surpassed the target set by the European Central Bank for the euro zone in June, the second month in a row it has done so, lending support to the ECB's decision to close its bond purchase scheme at the end of the year.

Data published by the Federal Statistics Office on Thursday showed that EU-harmonised German consumer prices rose 2.1 percent year-on-year. The same measure had increased by 2.2 percent in May. The yearly figure matched a Reuters forecast.

A breakdown of the non-harmonised figures showed that higher costs for food, energy and goods had propelled the rise in June.

On the month, EU-harmonised prices were up 0.1 percent, the preliminary numbers showed. That was less than the Reuters consensus forecast for an increase of 0.2 percent.

"Regardless of how inflation develops, the path of the ECB has been marked," Thomas Gitzel of VP Bank Group wrote in a note.

With inflation firming in the euro zone, the ECB said earlier this month it would end its crisis-era bond buying programme -- originally designed to ward off deflation and stimulate the economy. But it signalled that any interest rate rise remains distant.

The decision reflected uncertainties hanging over the euro zone economy, including trade tensions between the United States, the European Union and China.

"That higher consumer prices are mainly due to costlier energy is no reason for the ECB to panic," added Gitzel. "The course of inflation has for the time being no immediate influence on rates policy."

In another sign of accelerating inflation in the euro zone, Spanish consumer prices increased in June at their fastest pace since April 2017, also exceeding the ECB's target level.

"Today's German data should be both comforting and worrying for the ECB," said Carsten Brzeski of ING DiBa.

"Comforting, as the stabilisation of consumer confidence at a high level should support the ECB’s view of a continued recovery, but worrying because despite the tight labour market, a lack of qualified workers and recent wage increases, underlying inflation remains low and is not (yet) accelerating."

Rising core inflation is a prerequisite for the ECB to engage in the anticipated end of its quantitative easing programme by the end of 2018, said Brzeski.

(Reporting by Joseph Nasr; Editing by Madeline Chambers and Catherine Evans)

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