Europe’s Inflation Retreat to Be Hindered by Cheap German Travel

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(Bloomberg) — Germany’s rollout of ultra-cheap public transport last summer is set to reverberate through its upcoming inflation readings, causing a headache for the European Central Bank.

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The 9-euro ($9.90) monthly ticket was available from June to August 2022, granting citizens burdened by soaring energy costs unlimited travel on regional trains, trams and buses. It was so popular that it became a permanent fixture this year — albeit with a heftier 49-euro price tag. 

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That cost difference is important. Bloomberg Economics sees it driving annual inflation in Europe’s biggest economy up to 7% this month from 6.3% in May. The effect will be felt beyond Germany’s borders, too, adding about 0.2 percentage point to euro-area price gains in June and exerting upward pressure on a measure of underlying pressures through August.

That could dash any hopes of a pause in the ECB’s historic campaign of interest-rate increases, which several officials reckon can only happen once a pronounced retreat in core price growth is evident. Certainly in Germany, that milestone appears some way off.

“The June reading might mark the peak for headline inflation in the remainder of the year,” said Martin Ademmer, an economist at Bloomberg Economics in Frankfurt. “In contrast, core inflation is likely to reach new record highs this summer, keeping the ECB on edge.”

The German statistics office will publish its next inflation report on June 29. Euro-zone data will arrive the following day. 

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