German CPI data disappoints, drops 0.1% month on month in December

FXStreet (Mumbai) – German headline inflation in December came in at 0.3% year on year, down from 0.4% in November. It is also below the 0.6 per cent increase that was expected by markets. Month on month, German prices dropped by 0.1%, once again below the 0.2 per cent increase estimated. Based on the harmonised European definition (HICP), headline inflation dropped to 0.2 per cent year on year in December. Today’s data brought into focus the fact that 2015 registered the lowest average annual inflation rate in Germany since the start of the monetary union.

Annual energy price dipped to 6.5 per cent in December from 7.5 per cent. Food prices however increased at a slower rate of 1.4 per cent. The drop in headline inflation was not only because of lower energy prices but also on account of the discounts offered in the Christmas sale season.

Going by the current scenario, headline inflation can be expected to cross the 1 per cent-threshold only in the second half of 2016. Slump in energy prices can be expected to continue to keep check on prices and thus it is difficult to imagine a sharp turnaround in prices in Germany any time soon. Unfortunately the strengthening of labour market and wage increases seen in Germany over the last few months could not raise core inflation.

The situation, however works in favour of the German consumers who can expect to continue to reap the benefits from strong labour market with decent wage increases and low inflation. The two factors when combined will likely improve purchasing power of the consumers. This will then help to raise private consumption.

The ECB’s €1.1tn QE programme has not so far been able to stabilize prices in the bloc. Claus Vistesen at Pantheon Macroeconomics feels today’s German data is an indication that the euro zone CPI reading scheduled to be released tomorrow might be disappointing. It seems unlikely now that the euro zone inflation—data will rise to 0.4% year-over-year as broadly expected. On the contrary inflation might remain unchanged or even drop to 0.1 per cent. If tomorrow’s euro zone CPI data disappoints the probability for more easing in the coming months will increase manifold.

German headline inflation in December came in at 0.3% year on year, down from 0.4% in November. It is also below the 0.6 per cent increase that was expected by markets. Month on month, German prices dropped by 0.1%, once again below the 0.2 per cent increase estimated. Based on the harmonised European definition (HICP), headline inflation dropped to 0.2 per cent year on year in December. Today’s data brought into focus the fact that 2015 registered the lowest average annual inflation rate in Germany since the start of the monetary union.

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