EUROPEAN INFLATION: German State-Level Details Point Towards Softer Services
Looking at the details of the May state-level German CPI data released, core assumptions of analysts ahead of the release appear to have materialized: Services decelerated to around 3.5% Y/Y (calculation based on 50% of national-level basket weighting) with transport services (e.g. airfares) likely having a negative contribution. Energy deflation has tapered off vs April, while food inflation appears to have broadly remained unchanged.
- On services, we see communication, recreation and culture, and education all lower than before, at -1.2 to -1.1% Y/Y, 1.2% Y/Y, and 4.7% Y/Y, respectively (-0.9%, 1.6%, and 4.8% priors). Restaurant and hotels inflation seems to have materially accelerated from April's 3.7%, meanwhile - hotel prices seem very firm in May in some states.
- The mixed-weighting transport category was lower than before, we see it around 0.6-0.7% Y/Y (1.4% prior) - amid energy having accelerated overall, this points towards lower transport services (e.g. airfares, and subsequently to an unwind of April's easter effects to some degree).
- On the core goods categories, clothing and footwear seem to have printed notably lower than before (0.2% Y/Y, which would be the lowest since July 2022 vs 1.0% prior). Looking ahead, continued downside pressure in the category might point towards Chinese rerouting of products previously targeted at the US being at play here. Furnishings and household equipment was materially unchanged, meanwhile, we see the category around -0.2% Y/Y (-0.3% prior).
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UK: Main Parties Face Tough Local Election Test, But Little Short-Term Impact
Local elections take place in 24 local authorities and six regional mayoralties across England on 1 May. A parliamentary by-election will also take place in the seat of Runcorn and Helsby after sitting Labour MP Mike Amesbury was sentenced to ten weeks in prison for assault. The last time these areas held council elections was 2021, when the centre-right Conservatives, in gov't under then-PM Boris Johnson, performed strongly on the back of the COVID-19 vaccine rollout. This time around, the populist Reform UK is well-positioned to make gains at the expense of both the Conservatives and the governing centre-left Labour party.
- In the July 2024 election, Amesbury won the new Runcorn and Helsby seat with a majority of 14,696 on 52.9% of the vote. The Reform UK candidate came in second place with 18.1%. The (little) opinion polling carried out to date shows Reform UK with a narrow lead, while data from Smarkets shows bettors assigning a 75.8% implied probability that Reform UK wins the seat.
- The loss of Runcorn and Helsby would be a blow to PM Sir Keir Starmer, but not a significant one. Starmer's gov't retains a sizeable majority in parliament, and the likely poor performance of the Conservatives could dominate the news cycle after the vote, particularly given pressures on leader Kemi Badenoch.
- As such, while the results will be pored over in UK media, they are unlikely to impact gov't stability or lead to any major shifts in gov't policy in the short term.
MNI: US MBA: MARKET COMPOSITE -4.2% SA THRU APR 25 WK
- MNI: US MBA: MARKET COMPOSITE -4.2% SA THRU APR 25 WK
EUROZONE DATA: Q1 GDP Flattered By Rounding, Irish Exports
As we suspected, the Eurozone flash Q1 GDP release was flattered by rounding, coming in at 0.352% unrounded. That’s still well above the 0.2% projected by consensus and the ECB, but the data was nonetheless skewed by tariff-front loading, particularly in Ireland. Sentiment data points to weak growth momentum in Q2, as US tariffs start to kick in and associated uncertainty continues to weigh.
- Irish GDP rose 3.2% Q/Q, with the stats office noting that “this was driven by an increase in the multinational dominated sectors in Q1 2025 with a more modest increase in the domestic sectors”. Irish February goods trade data showed a 211% Y/Y increase in exports to the US, which largely comprised of medical and pharmaceutical products - an obvious indication of front-loading amongst major US Pharma companies based in Ireland.
- Ireland contributed 0.11p to the Eurozone-wide quarterly reading, despite only making up 4% of total GDP.
- Across the four major economies, detailed information on the Q1 data is lacking. However, we note that domestic demand appears to have been a positive contributor in Germany, Spain and Italy, while net trade was a negative contributor to France and Italy. Net trade was not mentioned in the German press release, suggesting a flat/negative contribution there too.
- Summarising the main quarterly GDP prints released yesterday/this morning:
- Eurozone: 0.4% Q/Q vs 0.2% cons, 0.2% prior.
- Germany: 0.2% Q/Q vs 0.2% cons, -0.2% prior.
- France: 0.1% Q/Q vs 0.1% cons, -0.1% prior.
- Italy: 0.3% Q/Q vs 0.2% cons, 0.2% prior.
- Spain: 0.6% Q/Q vs 0.7% cons, 0.7% prior.
