Inflation increases in Germany

Consumer prices in Germany rose by 0.4 per cent in May due to higher prices for food and energy. The annual inflation rate climbed to 1.6 per cent, reversing the declines of the previous two months. Inflation in other goods edged higher too, but in services declined. The weakness of the mark has driven import prices higher, but wage costs have been extremely subdued. Most analysts think the headline inflation rate will remain very low, leaving the prospect of an increase in German interest rates very distant.

Separate figures suggested that manufacturing activity in Europe is poised to pick up. The EU-wide survey of business confidence showed an improvement in order books, and expected production remaining well above last year's doldrums. The current levels of business expectations are the highest since mid-1994.