German CPI: More worries for the ECB - ING

German CPI reached 2-year highs. According to Carsten Brzeski, Chief Economist, at ING the numbers will not make European Central Bank’s life easier.

Key Quotes: 

“Based on the results from six regional states, German headline inflation in October came in at 0.8% YoY, from 0.7% in September. Based on the harmonised European definition (HICP), and more relevant for ECB policy making, headline inflation increased to 0.7% YoY, from 0.5% YoY in September. Headline inflation is now at the highest level since October 2014.”

“Today’s German inflation data will not make the ECB’s already difficult life any easier. Particularly on the day that Germany is celebrating the World Savings Day, falling real interest rates will hardly increase public support for the ECB. Adjusting for today’s inflation data, the ECB’s real policy rate has now dropped to the lowest level since the end of 2014.”

“While lacking German support for QE is well-known and the ECB has learnt to live with it, higher inflation rates in Germany and the entire Eurozone could spark the discussion on another issue of higher relevance to the ECB: the tapering discussion. With headline inflation probably increasing in the entire Eurozone in the coming months, the December meeting is not only the most likely but possibly also the last moment to find wide support within the ECB’s Governing Council for an extension of QE; either at the current or maybe even at a slower monthly pace.”