German inflation to ease in May, regional data suggests

German inflation to ease in May, regional data suggests

© Reuters. Outbreak of the coronavirus disease (COVID-19), in Cologne

BERLIN (Reuters) – Inflation eased in some German states in May, suggesting the national reading will also decelerate and remain far below the European Central Bank’s target, providing further justification for extra stimulus.

In North Rhine-Westphalia, Germany’s most populous state, consumer price inflation slowed to 0.5% year-on-year from 0.8% in the previous month, data showed on Thursday. Annual inflation eased in four other states too.

The regional inflation figures, which are not harmonised to compare with other European Union countries, feed into nationwide preliminary inflation data due at 1200 GMT.

Plunging inflation, mostly a result of crashing oil prices, only adds to arguments for the ECB to step up stimulus further in the coming months.

The ECB has already unveiled a long list of measures to mitigate recession, including 1.1 trillion euros ($1.21 trillion) worth of bond buys and loans at deeply negative rates.

Accounts of the ECB’s April meeting showed the bank is “fully prepared” to provide even more stimulus as soon as June to support an economy that may shrink by a tenth this year due to the COVID-19 pandemic.

A poll conducted before the release of the regional data suggested annual pan-German consumer price inflation, harmonised to compare with data from other EU member states, would slow to 0.5% in May from 0.8% in the previous month. That would be the lowest reading since August 2017.

The ECB targets an inflation rate of close to, but below, 2% for the euro zone but has fallen short of that aim for years despite unprecedented monetary stimulus.

ECB chief economist Philip Lane has said that low inflation could become more persistent in the current global environment and price growth may deviate from central bank targets for longer periods.

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