5 Jan 2015
German inflation increases ECB headache – ING
FXStreet (Barcelona) - Carsten Brzeski of ING notes that the decline in German headline inflation to 0.2%YoY in December from previous 0.6% in November shows that the Eurozone inflation might have dropped to negative territory, feeding deflationary concerns and increasing ECB’s headache.
Key Quotes
“Based on the results of six regional states, German headline inflation dropped to 0.2% YoY in December, from 0.6% in November. On the month, German prices remained unchanged. Based on the harmonised European definition (HICP), and more relevant for ECB policy making, headline inflation decreased to 0.1%, from 0.5% in November. German inflation is now at the lowest level since October 2009.”
“Looking at the available components at the regional levels shows that the drop in headline inflation was not only driven by lower energy prices but also some tentative second-round effects on consumer goods. Maybe first discounts during the Christmas shopping period.”
“For the ECB, however, today’s drop in German inflation will not make things any easier. In fact, chances are high that Eurozone headline inflation (to be published on Wednesday) has dropped into negative territory in December, for the first time since October 2009.”
“While recent events in Greece have probably encouraged QE-opponents at the ECB to increase their resistance, negative headline inflation would clearly feed deflationary fears of the QE-proponents. It is obvious that falling inflation and the new Grexit debate will definitely not take the bite out of the QE-discussion at the next ECB meeting on 22 January.”
Key Quotes
“Based on the results of six regional states, German headline inflation dropped to 0.2% YoY in December, from 0.6% in November. On the month, German prices remained unchanged. Based on the harmonised European definition (HICP), and more relevant for ECB policy making, headline inflation decreased to 0.1%, from 0.5% in November. German inflation is now at the lowest level since October 2009.”
“Looking at the available components at the regional levels shows that the drop in headline inflation was not only driven by lower energy prices but also some tentative second-round effects on consumer goods. Maybe first discounts during the Christmas shopping period.”
“For the ECB, however, today’s drop in German inflation will not make things any easier. In fact, chances are high that Eurozone headline inflation (to be published on Wednesday) has dropped into negative territory in December, for the first time since October 2009.”
“While recent events in Greece have probably encouraged QE-opponents at the ECB to increase their resistance, negative headline inflation would clearly feed deflationary fears of the QE-proponents. It is obvious that falling inflation and the new Grexit debate will definitely not take the bite out of the QE-discussion at the next ECB meeting on 22 January.”