Inflation up in three German states, pointing to slight national rise

BERLIN (Reuters) - Inflation in three German states inched up in May, preliminary data showed, suggesting that national inflation in Europe's biggest economy may rise slightly, although price growth did decline in one state.

Economists will pay close attention to the national data later on Wednesday, as Germany publishes its figures before a euro zone inflation data release expected on Friday.

The inflation rate in North Rhine-Westphalia, Germany's most populous state, rose to 2.5% year-on-year in May from 2.3% in April. In Bavaria, the rate was up in May at 2.7% from 2.5% and in Saxony it rose to 3.1% from 2.7%.

However, the figures were mixed as in Brandenburg the rate nudged down to 2.9% from 3.0%. In Hesse and Baden-Wuerttemberg the rate stayed flat at 1.9% and 2.1% respectively.

Economists polled by Reuters forecast Germany's harmonised inflation rate at 2.7% in May, up from 2.4% in April.

The expected rise is due in part to the end of a one-off effect of a cheap national railway ticket scheme introduced in May 2023 that has lowered public transport prices over the last year, said economists.

Euro zone inflation is expected to edge up to 2.5% in May from 2.4% the previous month, according to economists polled by Reuters.

The European Central Bank will be scrutinising that figure as it looks set to lower interest rates next week after its biggest ever streak of hikes brought down inflation to just above its 2% target.

However, policymakers have said the pace and scope of further reductions will depend on the durability of lower inflation.

Euro zone consumers reduced their inflation expectations last month, an ECB survey showed on Tuesday.

In Germany, data has offered signs of a brighter economic outlook with consumer sentiment recovering for a fourth month in a row heading into June and real wages rising by a record 3.8% in the first three months of 2024.

(Writing by Rachel More and Madeline Chambers; Editing by Toby Chopra)