Is the ECB Also Pausing Tightening? Inflation Slows in Germany and France

Expert: "Eurozone Shows Signs of Disinflation... Prepare for Policy Changes"

As inflation rates in Germany and France, the two economic powerhouses of Europe, slow down, there are growing expectations that the European Central Bank (ECB) is nearing the end of its interest rate hikes. With Philip Jefferson, nominated as Vice Chair of the U.S. Federal Reserve (Fed), indicating a pause in rate hikes next month, the market is even discussing the possibility of the ECB freezing rates. Analysts suggest that both the U.S. and Europe are entering a phase to halt the monetary tightening that has continued since last year and assess the impact of their policies.

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According to major foreign media on the 1st (local time), Germany's consumer prices in May rose 6.3% compared to a year earlier, showing a slowdown in the inflation rate from the previous month’s 7.6%. This was largely due to a significant drop in energy prices and a reduced increase in prices for food, goods, and services.

France's inflation rate also fell from 6.9% in April to 6% in May, below the expert forecast of 6.4%. Price increases slowed across all categories except tobacco. According to a Reuters survey of experts, the inflation rate for the entire Eurozone is also estimated to decline from 7% in April to 6.3% in May.

With inflation easing in Germany and France, the two pillars of the Eurozone economy, the market expects the ECB to halt its tight monetary policy.

Klaus Wistisen, an economist at research firm Pantheon Macroeconomics, said, "We are now seeing clear signs of disinflation in the Eurozone," adding, "Investors should prepare for the possibility that the ECB will change its policy at next month’s meeting, including ending the rate hike cycle in July."

The Eurozone economy is also cooling rapidly, making it difficult for the ECB to raise rates further. Germany has already entered a recession, with its GDP growth rate at -0.3% in the first quarter of this year, following -0.5% in the fourth quarter of last year, marking two consecutive quarters of contraction. Bank lending in the Eurozone has also been sluggish for six consecutive months, raising concerns about credit tightening.

The key variable is core inflation. The ECB focuses on core inflation, which excludes energy and food prices to show the underlying trend. Some analysts argue that the ECB will only end tightening this summer if a clear slowdown in core inflation is confirmed.

Luis de Guindos, Vice President of the ECB, said, "Recent data is positive news," but added, "Core inflation remains a concern. We cannot say we have won the battle."

This content was produced with the assistance of AI translation services.