German final June CPI was confirmed at 0.4% m/m and 0.1% y/y, as expected. The breakdown, which was available for the first time, showed that the monthly uptick was mainly due to higher energy prices, with petrol prices up 4.6% m/m and prices for heating oil up 8.9% m/m. In an annual comparison energy prices remain sharply down, however, with heating oil prices falling 40.2% y/y and petrol prices 15.4% y/y. HICP inflation was confirmed at 0.0% y/y. Headline inflation is likely to fall into negative territory in coming months on the back of base effects from energy prices, but with base effects turning negative again toward the end of the year we agree with the ECB that the risk of lasting deflation is limited, even though the central bank has to keep a close eye on inflation expectations.
Germany posted a seasonally adjusted trade surplus of EUR 10.3 bln in May, up from EUR 9.0 bln in April. Exports were up a modest 0.3% m/m, but imports fell 2.1% m/m, after already falling 6.0% m/m in the previous month, with falling import prices likely to play a role. Unadjusted data show a trade surplus of EUR 9.6 bln, down from EUR 14.5 bln in May last year and versus EUR 9.4 bln in April. The surplus in the year to date amounte dto just EUR 29.2 bln, down from EUR 73.0 bln in the corresponding period last year. The current account surplus amounted to EUR 3.7 bln in May, down from EUR 8.1 bln in may 2008 and versus EUR 5.5 bln in April. Export demand remains subdued amid a world recession and while falling import prices are lifting the nominal trade surplus we expect ongoing negative contributions from net exports to overall GDP this year.