German inflation eases more than expected in June

By Maria Martinez

BERLIN (Reuters) -German inflation fell more than expected in June, resuming its downward trend after two consecutive months of increases and leaving the door open for another rate cut by the European Central Bank in September.

Inflation eased to 2.5% in June, preliminary data from the federal statistics office showed on Monday, down from 2.8% in May and below the 2.6% forecast by analysts in a Reuters poll.

Inflation figures for Germany and other major European economies suggest that euro zone inflation data - to be published on Tuesday - will also show a broad easing of price pressures.

"After the reversed base effect from last year's introduction of cheap public transportation in May, inflation is mainly back to where it was in March and April," said ING's global head of macro Carsten Brzeski.

In March, inflation in Europe's largest economy slackened to 2.3%, its lowest level since June 2021.

Headline inflation was pulled lower in June mainly by a drop in energy prices. Core inflation, which excludes volatile food and energy prices, fell to 2.9% from 3.0% in May.

"This was due to a further fall in the rate of inflation for goods, although this downward trend should soon come to an end," said Commerzbank economist Ralph Solveen.

Goods inflation fell to 0.8% in June from 1.0% in May.

Although the overall inflation rate in Germany could temporarily fall to 2% in the coming months, the core inflation rate is likely to stabilise close to its current level and thus remain above the European Central Bank's target, said Solveen.

In Germany, fewer companies intend to raise their prices than in the previous month, according to a survey by the Ifo institute published on Monday.

“The inflation rate is therefore likely to continue its slow decline and fall below the 2% mark in August for the first time since March 2021,” said Timo Wollmershaeuser, head of forecasts at Ifo.

DOOR OPEN FOR A RATE CUT

Pantheon Macroeconomics also sees Germany's headline inflation falling below 2% by August, "helping to get a 25 basis points rate cut over the line in September, before a rebound to just under 2.5% by the end of the year," chief eurozone economist Claus Vistesen said.

Economists pay close attention to German inflation data, as the euro zone's biggest economy publishes its figures before the euro zone inflation data release.

Euro zone inflation is expected at 2.5% in June, down from 2.6% in the previous month, according to economists polled by Reuters.

Although inflation figures for several economies suggest that euro zone headline and core inflation fell in June, services inflation remains high, said Franziska Palmas, senior Europe economist at Capital Economics.

"This will keep ECB policymakers cautious," Palmas said.

Germany's services inflation remained unchanged at 3.9% in June.

"For now, today’s German inflation numbers leave the door open to another rate cut in September, even though wage developments could still motivate some officials to postpone the next rate cut to the winter," ING's Brzeski said.

(Reporting by Maria Martinez, Writing by Miranda Murray, Editing by Friederike Heine, Chizu Nomiyama and Christina Fincher)