German inflation accelerates sharply in May on surge in energy prices

German inflation jumped in the month of May. The headline consumer price inflation accelerated to 2.2 percent in May from 1.6 percent in April, coming up above expectations. The surge in energy prices was generally expected. This alone contributed 0.3 percentage points to inflation. But most analysts underestimated the rise in the prices of package holidays, which was responsible for most of the other three tenths of the rise in inflation.

Moreover, the decisive factor here was probably the fact that North Rhine-Westphalia, the most populous state in Germany, had a full week of Pentecost holidays this year as an exception, and thus the demand for package holidays was significantly higher than usual in May, noted Commerzbank in a research report. Therefore, the rise in core inflation rate to 1.7 percent is expected to be largely corrected again in June.

Excluding energy prices, food prices and the prices of package holidays, the resulting core inflation rate rose just slightly in May. This signifies that although the underlying price upswing in Germany is showing an upward trend, this movement has been very moderate, stated Commerzbank.

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