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German inflation surpasses ECB target

German consumer prices increased by 2.2% year over year during May, overshooting the European Central Bank's target of just under 2% for the eurozone.

In EU-harmonized terms, prices in Germany rose 1.4% in April.

On a monthly basis, harmonized consumer prices rose by 0.6% in May from the previous month, according to the country's Federal Statistics Office.

The nonharmonized inflation rate is estimated to be 2.2% in May from a year earlier, its highest level since February 2017. Energy inflation accelerated to 5.2% in May from a year-over-year increase of 1.3% in April. Goods inflation increased to 2.5% from 1.6%, while services inflation increased to 1.9% from 1.5%.

Nonharmonized consumer prices increased by 0.5% month over month in May, according to a provisional estimate.

Spanish consumer prices also rose more than the ECB's target in May, marking their fastest pace since April 2017, Reuters reported.

The ECB is determined to end asset purchases in 2018 and hike rates in the middle of 2019. But investors no longer expect the ECB to raise rates in June 2019 amid an economic slowdown and market turmoil due to a political crisis in Italy.

"Despite today's [German] increase in headline inflation, the underlying trend still points to a rather benign picture for inflationary pressures. It increasingly looks as if the big question for the ECB is not when to stop [quantitative easing] but rather when to signal an extension of QE," according to ING. "With the latest market turmoil and political tensions in Italy, giving some certainty in times of uncertainty could be the ECB's preferred policy choice. This would be an announcement or at least a very clear hint at QE extension at the June meeting."