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4 Jan 2016
Germany: Lower food prices affected December inflation reading - Danske
FXStreet (Córdoba) - According to analysts from Danske Bank, the decline in the annual inflation rate in December in Germany was mainly due to lower food prices that offset an increase in energy prices.
Key Quotes:
“German HICP inflation surprised on the downside by declining to 0.2% y/y in December from 0.3% y/y in November (consensus was for an increased to 0.4% y/y). German CPI inflation also declined by 0.1pp to 0.3% y/y in November (consensus 0.6% y/y).”
“Looking at the details for German CPI inflation, the decline was mainly due to lower food price inflation, whereas energy price inflation increased despite the latest oil price decline.”
“Based on the lower German HICP inflation figure, we revise our euro HICP inflation forecast for December down to 0.3% y/y (from 0.5% y/y) and still up from 0.2% y/y in November.”
“We still look for an increase in euro inflation to 0.7% y/y in January, where the base effects will be even stronger than in December. If the oil price measured in euro remains around the current level of EUR35/bbl, the drag from energy price inflation should fade by around an additional 30bp from December to January. However, there is a risk that gasoline prices will decline further and hence result in lower energy price inflation, as there is now a large spread to oil prices.”
“Lower core inflation will increase the pressure on the ECB to ease again, but the ECB has long been too optimistic on its outlook for core inflation and we do not expect a lowering of the ECB’s projection to be enough to trigger additional easing. Instead, we expect the ECB has deliver the end-of-easing as we look for a re-acceleration in euro area activity and a continued decline in the unemployment rate in 2016. That said, the risk to our main scenario is that the low oil price results in de-anchored inflation expectations and higher real yields, which could force the ECB to ease again.”
Key Quotes:
“German HICP inflation surprised on the downside by declining to 0.2% y/y in December from 0.3% y/y in November (consensus was for an increased to 0.4% y/y). German CPI inflation also declined by 0.1pp to 0.3% y/y in November (consensus 0.6% y/y).”
“Looking at the details for German CPI inflation, the decline was mainly due to lower food price inflation, whereas energy price inflation increased despite the latest oil price decline.”
“Based on the lower German HICP inflation figure, we revise our euro HICP inflation forecast for December down to 0.3% y/y (from 0.5% y/y) and still up from 0.2% y/y in November.”
“We still look for an increase in euro inflation to 0.7% y/y in January, where the base effects will be even stronger than in December. If the oil price measured in euro remains around the current level of EUR35/bbl, the drag from energy price inflation should fade by around an additional 30bp from December to January. However, there is a risk that gasoline prices will decline further and hence result in lower energy price inflation, as there is now a large spread to oil prices.”
“Lower core inflation will increase the pressure on the ECB to ease again, but the ECB has long been too optimistic on its outlook for core inflation and we do not expect a lowering of the ECB’s projection to be enough to trigger additional easing. Instead, we expect the ECB has deliver the end-of-easing as we look for a re-acceleration in euro area activity and a continued decline in the unemployment rate in 2016. That said, the risk to our main scenario is that the low oil price results in de-anchored inflation expectations and higher real yields, which could force the ECB to ease again.”