German CPI dips in June, but much quicker price gains seen ahead

The cost of living in Germany retreated last month amid a decline in energy and services prices, but according to some economists quicker inflation lay ahead.

According to the country's Ministry of Finance, the annual rate of increase for headline consumer prices slipped from 2.5% for May to 2.2% in June - as expected by economists.

Energy inflation decreased from 10.0% to 9.4%, alongside a slowdown in the rate of gain in prices for services from 2.2% to 1.6%.

Dragging on the latter was a decline in prices in the notoriously volatile package holidays component.

On a harmonised basis meanwhile, headline CPI slowed from 2.4% to 2.1%, also as expected.

At the core level, harmonised CPI likely slowed even more sharply, from 1.6% to 1.0%, Claus Vistesen at Pantheon Macroeconomics said.

Going forwards however, German inflation was set to "soar", Vistesen added, as the negative base effects of VAT cuts in 2020 lifted core goods inflation.

"What we can say, however, is that headline inflation in Germany is about to soar," he said to clients.

"The relative stickiness of the energy component suggest that a print at 3% or higher is now in sight, though again, we caution that this forecast comes with a wide confidence interval."