The German ZEW index extended its rebound in April, rising for the fifth consecutive month. The headline, economic sentiment, indicator rose from 22.3 to 23.4, while the consensus was looking for a decline to 19.0. After an impressive four-month rebound, the German ZEW indicator remained broadly stable in April. The current situation sub-index resumed its upward trend, rising from 37.6 to 40.7, after a temporary pause in March.
A ZEW economist added that downside risks decreased considerably as recession risk is seen at 15% now, compared to 30% at the end of last year. The ZEW indicator continued its upward trend unexpectedly in April, but the pace of increase eased considerably.
This sharp improvement in sentiment is however not confirmed by the hard data as the German economy is expected to have contracted for a second straight quarter in the first three months of the year.
The final figure of euro area CPI inflation for March showed an upward revision to 2.7% Y/Y, compared with a first estimate of 2.6% Y/Y. Already for four months now, CPI inflation is stable at 2.7% Y/Y, while a further slowdown in inflationary pressures was expected at the start of the new year. On a monthly basis, inflation rose by 1.3% M/M led by higher prices for clothing (16.0% M/M), energy (1.6% M/M), transport (1.3% M/M) and household equipment (0.7% M/M).
Also core inflation, which excludes volatile energy and food prices, surprised on the upside of expectations. Core inflation rose by 1.5% M/M and the annual rate picked up from 1.5% Y/Y to 1.6% Y/Y, while a stabilization at 1.5% Y/Y was expected. Euro zone inflation continues to surprise on the upside of expectations and remains stubbornly high, partly due to high energy prices.
It is now ever more unlikely that inflation will fall back below the ECB’s 2% target this year as inflation will continue to face upward pressures coming from the pass-through of high energy prices and potentially further tax increases.