German inflation picks up in June, could buttress ECB's “wait-and-see” approach for further stimulus

Data released by German federal statistics office, Destatis, showed earlier on Tuesday that inflation in Germany accelerated fractionally in June, buoyed by rising food prices and shallower declines in energy prices. There was a 0.4 percent decline in food prices for the month, while transport costs rose by 0.8 percent due to the rise in fuel prices as oil prices strengthened. There was a further increase in recreation costs as package holiday prices strengthened.

German consumer prices rose 0.1 percent according to the final data and confirming a preliminary estimate released at the end of June. Goods prices fell 0.2 percent for the month to give an annual 0.8percent decline, while services-sector prices rose 0.3 percent to give a 1.4 percent annual gain.

There was an annual increase in prices of 0.3 percent, also unchanged from the flash reading and in line with market expectations. Annual inflation rate is showing rise for three consecutive months, up from a trough of -0.1 percent in April. A further sustained increase would start to cause some concerns within the Bundesbank and may trigger strong Bundesbank pressure for the ECB’s bond-buying programme to be suspended.

The price growth supports central bank expectations that German - and therefore - eurozone inflation will pick up in the course of the year after low, or falling prices, in the early months. It may also reinforce central bankers' wait-and-see approach on introducing new monetary stimuli after March rate cuts.

Upside momentum in the shared currency is now gathering extra steam after German CPI data. EUR/USD pushed higher above 1.1100 handle. German bonds were slightly lower following the release with the 10-year contract down by around 5 ticks as the improvement in risk conditions tended to dominate market moves.