Independent survey report also points to slowdown in manufacturing sector, reports Team IFM
Wiesbaden, July 3: The rate of inflation in Germany accelerated faster than expected in June on a monthly basis, according to official data released last week even as an independent survey report said its goods producing sector has been stagnant since May, ending a six-month spell of a swelling workforce.
According to the first estimate of Destasis, the German Federal Statistics Office, consumer prices in Europe’s biggest economy rose at an annualised rate of 1 percent. On a monthly basis, CPI, or the consumer price index, went up by 0.3 percent, Destatis said in a report published in Wiesbaden.
The reading was higher than the 0.2 percent rate predicted by a poll of economists conducted by financial news agency MNI. The annual pace, however, matched the MNI median, the agency said.
In another development, according to the latest survey of economy tracker Markit, output growth at German factories dropped to an eight-month low in June as new orders increased at the weakest rate in almost a year. This led to employment generation stagnating, ending a six-month sequence of growth.
“Client demand from foreign markets rose to the weakest extent in the current spell of growth, suggesting that a relatively strong Euro is acting as a drag on stronger export growth and may continue to do so in the coming months,” said Oliver Kolodseike, economist at Markit and author of its latest survey report.
Interestingly, Germany’s annual inflation rate had almost halved in May, coinciding with declines in Belgium, Spain and Italy with only Spain and the Netherlands recording an uptick in growth during the month.
The final May reading tallied with a five-year low of 0.5 percent and economists said the series of low inflation data could have goaded the European Central Bank (ECB) to lower its key refinancing rate to 0.15 percent.
At the June 5 meeting, the ECB had also announced it was lowering its deposit facility down 0.10 percent into negative territory.
“In Germany, the pace of expansion eased, possibly linked to some concerns over the situation in Ukraine, or perhaps simply due to the timing of Easter,” Chris Williamson, chief economist at Markit, had then analyzed. “Without any clear cause, the slowdown in the region’s largest economy will perhaps be the biggest concern for the Euro zone’s growth trajectory if a rebound isn’t forthcoming in June.”
SLOWDOWN IN EMPLOYMENT
Meanwhile, recruitment in Germany’s manufacturing sector, which had broadly come to a standstill since the previous month, showed no signs of perking up in June. This effectively meant the six-month spell of increasing workforce numbers had come to an end, said the Markit survey report for the factory sector in June.
Alongside, the backlog of work accumulated marginally, following a month of falling work-in-hand. Moreover, following the trend observed since February, input costs faced by German manufacturers fell further during June.
The latest decline in input costs was, however, the weakest in the current sequence of falling input prices, Markit said.
Some companies reported higher costs, which they attributed to increased raw material prices, but successful price negotiations resulted in the overall decline. Concurrently, selling prices rose for a second consecutive month, with the rate of inflation largely unchanged since the previous month.
German manufacturers remained cautious about inventory levels, highlighted by a fall in stocks of purchases and finished goods.
Meanwhile, the economy tracker said, suppliers’ delivery times lengthened to the greatest extent since January.
June data also signalled weaker expansions in output and new orders at German manufacturers with companies commenting on production adjustments after solid growth was reported at the beginning of the year.
Sector data suggested that production rose at intermediate and investment goods producers, but stagnated at consumer goods manufacturers. “While output has now increased for 14 successive months, the latest rise was the weakest since September last year,” the survey report said. “Order intakes, meanwhile, expanded at the slowest pace in nearly one year.”
Client demand from foreign markets also increased at a slower pace, with the pace of expansion the weakest since a fall was recorded in July last year.
Where panellists reported higher new export orders, they mentioned China as a source of growth.
With order intakes rising at a slower pace, German manufacturers lowered their purchasing activity for the first time in one year. The rate of decline was, however, only marginal.
“June’s survey results pointed to slower growth in Germany’s goods producing sector with the headline PMI falling to an eight-month low,” said Markit economist Kolodseike. “Output and new order growth continued to slow, which our panel members in many cases linked to production adjustments after strong growth had been reported at the beginning of the year.”
According to him, companies were reluctant to take on additional workers during June, thereby ending a six-month period of continuous job creation. This, he said, was in line with the weaker trends for output and new orders.
“Meanwhile, client demand from foreign markets rose to the weakest extent in the current spell of growth, suggesting that a relatively strong Euro is acting as a drag on stronger export growth and may continue to do so in the coming months,” Kolodseike added.
DATA FOR MAY
The May report by Markit said output growth had eased sharply during the month though remaining above series average, while order intakes increased at the slowest pace since October last year. Employment growth was sustained, but the rate of job creation was only marginal.
Overall, it said, the May data pointed to the 11th consecutive monthly improvement in manufacturing conditions with the PMI – the gauge for manufacturing activity – dipping to 52.3 from 54.1 in April.
“The latest reading was the weakest since October last year, signalling slower growth in the sector,” Markit said.
The sudden rise in new orders also upset suppliers’ delivery times, which deteriorated at the fastest pace since January. According to anecdotal evidence, vendors continued to struggle with larger inflows of new work, resulting in slower delivery times.
“The combination of weaker trends for output and new orders plus falling backlog of work fed through to the jobs market,” said Kolodseike. “Employment growth edged closer to stagnation in May, with some companies shedding staff in response to lower production requirements.”