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German inflation accelerates again in May

Edward Bell - Senior Director, Market Economics
Published Date: 31 May 2022


  • Inflation in Germany accelerated to 8.7% y/y in May, faster than market expectations and a sharp acceleration from the 7.8% recorded in April. High energy and good prices are driving prices higher as the war in Ukraine disrupts supply while persistent supply chain issues also help to keep pressure on core inflation. On top of the acceleration in Germany’s inflation, price pressures in all parts of the EU economy are still rising. Spanish inflation accelerated to 8.5% in April from 8.3% a month earlier largely on the back of higher energy costs. Core inflation rose by 4.9% y/y. ECB president Christine Lagarde has pushed against assessments that the EU is suffering from the same kind of inflation pressures as the US even as high core prices appear to be entrenched for now. Nevertheless, the hot inflation numbers across the Eurozone will raise the pressure to start normalizing rates from the July rate meeting, with a hike of as much as 50bps potentially in play.
  • The European Council, representing the political leaders of the EU member nations, agreed to block seaborne imports of Russian oil while allowing pipeline deliveries to continue for now. The embargo would cover roughly two-thirds of oil imported into the EU while Germany and Poland, which receive much of their oil imports via pipeline, have also committed to weaning themselves off Russian energy flows. The agreement would represent a considerable tightening of oil market balances just as demand moves to the normally stronger summer months.
  • Near-term indicators of China’s economy showed another month of contraction in May with the official PMI numbers for the manufacturing sector at 49.6, up from 47.4 a month earlier but still in shrinking territory. For the non-manufacturing sector, activity also moved up but at 47.8 still indicated a contraction.
  • Factory output in Japan fell in April as supply chain problems caused by China’s zero Covid strategy interrupted production. Output fell by 1.3% m/m and was down by 4.8% y/y.
  • Bloomberg reports that the UAE and Israel will sign a free trade agreement on Tuesday, citing Israel’s economy ministry. The agreement is aimed at boosting trade between the two countries, which had reached USD 950mn in the first nine-months of 2021. 

Today’s Economic Data and Events

  • 10:45 FR CPI y/y May: forecast 5.2%
  • 11:00 TU GDP q/q Q1: forecast 7.2%
  • 13:00 EC CPI y/y May: forecast 7.8%
  • 16:00 IN GDP y/y Q1: forecast 3.9%
  • 18:00 US Conference Board Consumer Confidence May: forecast 103.8

Fixed Income

  • US Treasury markets were closed for the Memorial Day holiday in the US but both the 2yr and 10yr UST have opened weaker to start trading today. Christopher Waller, one of the FOMC governors, said he supported hiking by 50bps at “several meetings” likely setting the market up for June and July.
  • European bond markets opened the week on a softer footing. Yields on the 10yr bund added 9bps to close above the 1% level while 10yr gilt yields added 7bps to 1.987%.


  • The dollar was softer against most peer currencies overnight as markets have been reorienting rate expectations from the Fed and yields have come off of recent highs. EURUSD added 0.4% to settle at 1.0779 while GBPUSD rose by 0.17% to 1.2652. USDJPY, however, moved against the yen, rising by 0.38% to 127.59.
  • In commodity currencies CAD was the standout winner with USDCAD lower by 0.54% to 1.2655 ahead of this week’s Bank of Canada meeting where a 50bps hike is expected. AUDUSD rose by 0.47% to 0.7196 while NZDUSD added 0.37% to 0.6556.


  • US equity markets were closed to start the week but the positive momentum seen there on Friday carried on in the rest of the world in yesterday’s session, albeit at a more muted pace. In Europe, the FTSE 100, the CAC and the DAX added 0.2%, 0.7% and 0.8% respectively.
  • In Asia, the Nikkei gained 2.2% yesterday, with the Shanghai Composite adding 0.6%.
  • Locally, the DFM added 1.5% and the ADX 2.3%. In Saudi Arabia, the Tadawul closed up 1.7% while Egypt’s EGX 30 gained 0.2%.


  • Oil prices settled higher, rising by 1.9% in the Brent market to USD 121.67/b and are above USD 122/b at the moment. WTI is pushing higher by more than 2% in early trade today at USD 117.51/b. The EU embargo on Russian oil will serve to contain Russian oil output even more than the self-sanctioning that many importers have already adopted. The plan is set to be formally agreed by Wednesday.

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