Title: Germany's State Inflation Falls as Rail Giveaway, Fuel Tax Cut Take Effect

Jun 29, 2022 02:46AM ET

By: AnalysisWatch

Inflation in Europe's largest economy likely slowed in June after government measures to cut fuel prices and rail fares took effect,

The state of North Rhine-Westphalia, Germany's most populous, said consumer prices fell 0.1% in June from the previous month, bringing the annual inflation rate down to 7.5% from 8.1%. This was the first decline in the annual rate since January and has fueled hopes that headline inflation may have peaked in Germany and more broadly across the eurozone. In Germany, the consumer price index rose by 8.0% in the year to May and by as much as 8.8% under the EU's harmonized method.

Elsewhere in the euro zone, the situation was less encouraging: inflation data for Spain showed that price increases accelerated to 1.8% under the harmonized method and annual inflation reached a new 30-year high of 10.0%.

The introduction of the so-called 9-euro ticket on Deutsche Bahn led to a 69% month-on-month and 68.4% year-on-year reduction in prices for combined journeys. Similarly, fuel prices fell by 3.3% in May after the government cut the tax on gasoline in an effort to lower prices. This tax cut is limited to three months.

Thus, neither of the two factors that led to this decline reflects a sustained improvement in underlying price dynamics. Rents rose by 0.2% and restaurant and hotel costs by 1.2%. Prices for package tours rose by more than 16%, reflecting the seasonal increase in demand.

The Free State of Bavaria later also reported a slight decline in the annual inflation rate, from 8.1% to 7.9%. However, the underlying pressure was more noticeable, with monthly inflation still at 0.2%. Other key German states will present their CPI figures later this morning. A preliminary figure for Germany as a whole will be released at 8 AM ET.