Consumer prices provisionally undershot expectations this month. A 0.2 percent monthly drop was just short of the consensus call and soft enough to shave fully 0.5 percentage points off the annual inflation which, at 1.6 percent, hit a 6-month low. An unwinding of April's Easter effects was probably a significant factor.
The flash HICP also declined 0.2 percent versus April to see its yearly rate slide from 2.0 percent to 1.4 percent, similarly its weakest reading since last November.
The slide in the annual CPI rate was in part due to lower energy charges and prices here were up only 2.0 percent on the year compared with 5.1 percent in April. However, services (1.2 percent after 1.7 percent) had a sizeable negative effect too and were likely impacted more than most categories by Easter distortions. Goods inflation was off 0.4 percentage points at 1.8 percent but food climbed 0.6 percentage points to 2.4 percent and rent, excluding utilities was a tick firmer at 1.8 percent.
The hefty drop in German headline inflation all but guarantees a sizeable fall in the Eurozone rate this month (flash data are due tomorrow). However, much more important than the overall rate will be the core measures. The narrowest measure jumped 0.5 percentage points to 1.2 percent in April – should this be sustained this month the ECB would be more than a little pleased.