Cars drive past rows of petrol stations in Wasserbillig, Luxembourg. Photo: Harald Tittel/dpa

Asia Unhedged predicted that German inflation would decline as oil prices stabilized. The just-released May inflation data show a fall from 2% in April to 1.5% in May. As Citi economists point out, most of the decline is due to energy prices:

“Inflation volatility obscures underlying trend

German inflation fell back to 1.5% YY in May, down from 2.0% in April, in line with our forecast but slightly below consensus. Since March, inflation rates have been volatile due to the changed holiday pattern. This makes identifying the underlying trend even more difficult for us as well as the ECB.

Energy contributes 60% of the May decline

Energy inflation dropped sharply from 5.1% YY to 2.0% YY, subtracting 0.3pp from headline inflation due to base effects, lower oil prices and a stronger euro. Recent declines in food inflation came to a halt, with the component edging back up from 1.8% YY in April to 2.4% YY, adding roughly 0.1pp to headline inflation.

Asia Times Financial is now live. Linking accurate news, insightful analysis and local knowledge with the ATF China Bond 50 Index, the world's first benchmark cross sector Chinese Bond Indices. Read ATF now.