German consumer price inflation slowed in May, according to preliminary figures released by the national statistics office on Friday, but underlying price pressures rose, signalling that the impact of recent cost shocks tied to the Iran conflict is spreading through the economy.
The EU-harmonised consumer price index for Germany fell to 2.7% in May from 2.9% in April. Analysts polled had expected the harmonised CPI reading to be 2.8%.
At the same time, core inflation - which excludes volatile food and energy components - increased to 2.5% in May from 2.3% in the previous month. The rise in core inflation suggests price pressures are moving beyond the most volatile categories.
The German release arrives ahead of the euro zone inflation print due on Tuesday. Economists polled ahead of that release expect inflation across the bloc to accelerate to 3.3% in May, up from 3.0% in April.
Monetary authorities kept interest rates on hold at their April meeting, but the latest readings increase the likelihood that earlier warnings from the central bank will be followed by policy action next month. The upward move in core inflation is particularly relevant for policymakers because it reflects broader price dynamics beyond energy and food.
Taken together, the data portray a mixed picture: headline inflation easing modestly while the underlying trend shows renewed momentum. That divergence means markets, businesses and households may face uncertainty about how persistent inflationary pressures will be and how quickly policymakers will respond.
Context and implications
The decline in headline inflation offers some relief for headline measures, but the pickup in core inflation points to an economy where cost increases are increasingly embedded in non-energy sectors. With euro zone inflation expected to rise next week, attention will turn to how the central bank interprets these signals when it sets policy.