Germany May CPI Confirmed at 2.6% as Services Inflation Stays Sticky

Germany's consumer price index for May came in at 2.6% year-on-year, matching the preliminary reading released two weeks ago. Core inflation, which strips out food and energy, edged up to 2.5% from 2.3% in April. Services inflation, a key gauge for the European Central Bank, remained sticky at 3.1%.

Food prices rose 0.7% from a year earlier. Goods price inflation ran at 2.2%. The data, released by the Federal Statistical Office on Tuesday, reaffirmed that price pressures in Europe's largest economy are cooling only slowly.

The confirmation gives the ECB little room to adjust its stance toward easing. The central bank faces a widening divergence. Upside risks to inflation from the Middle East conflict compete with downside risks to growth from weaker global demand. That kind of split is not something the ECB likes to see.

Services inflation at 3.1% is the most stubborn component. It has barely budged from recent months. Bundesbank President Joachim Nagel earlier this month refused to rule out a July hike if the inflation outlook worsens, as reported by AlphaScala. ECB's Nagel Refuses to Rule Out July Hike as Middle East Shock Persists

The euro held near recent levels against the dollar after the print. The single currency has been supported by the ECB's comparatively hawkish posture versus the Federal Reserve. Sticky services inflation and a softening economy create an uncomfortable setup for the euro.

The ECB next meets on July 27. The services inflation number will be a central input into that decision.