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Tuesday, February 7, 2023

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German CPI Plunges Most Since 2015, But…

Good news, right?

German inflation plunged more than expected in December (EU Harmonized -1.2% MoM vs -0.8% exp) – the biggest MoM drop since Jan 2015.

Obviously, there appears to be a great deal of seasonality in this monthly series.

This slowed the YoY rate of inflation to +9.6% (vs +10.2% exp)

Bloomberg reports that the decline to single digits in the main rate masks an increase in food costs across Germany at the end of 2022, aggravating a squeeze on the poorest families and stoking the risk of a wage-price spiral.

However, the Bundesbank predicts consumer inflation will remain above 7% in 2023 and has cautioned against misinterpreting single data reports as a shift in trend, citing a “great deal of uncertainty.”

Additionally, a strong labor market in Germany, where unemployment unexpectedly dropped in December, supports the ECB’s hawkish argument that extending an historic series of rate-hikes with at least two more half-point steps early this year.

This post was originally published on this site

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