German inflation eases further in May as energy prices slide

Annual inflation in Germany slowed further in May, remaining well below the European Central Bank's target, preliminary data showed on Thursday, providing further justification for stimulus.

Consumer prices in Europe's biggest economy, harmonized to make them comparable with inflation data from other EU states, rose by 0.5% year-on-year from 0.8% in the previous month, the Federal Statistics Office said. That was in line with a Reuters forecast for a rise of 0.5%. Plunging inflation, mostly a result of crashing oil prices, adds to arguments for the ECB to step up stimulus further in the coming months.

It aims to keep inflation close to but below 2% for the currency bloc but has fallen short of that aim for years despite unprecedented monetary stimulus. On the month, EU-harmonised prices were unchanged in May. A Reuters poll had predicted a fall of 0.1%. On a non-harmonized basis, data showed a recent oil price slump hit energy prices while food prices rose.

The Ifo institute said earlier the German economy may well shrink by 6.6% this year as it will take around nine months for businesses to return to normal after the coronavirus shutdown. 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. 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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