Global| Dec 09 2010Germany’s Inflation Rates Climb
Summary
More angst in Euroland- Just in case there wasn’t enough to worry about in the e-Zone, Germany is now building a mild head of steam for inflation. The Yr/Yr rate is 1.4% while the three-month rate is 1.9%. The e-Zone as whole has an [...]
More angst in Euroland- Just in case there wasn’t enough to worry about in the e-Zone, Germany is now building a mild head of steam for inflation. The Yr/Yr rate is 1.4% while the three-month rate is 1.9%. The e-Zone as whole has an inflation limit imposed by the ECB at 2%. Generally this limitation is applied to headline inflation and to its Yr/Yr result. Germany is not brushing against that barrier yet. But its economic data are still strong and its unemployment rate is at an 18-year low and the economy seems poised to press ahead despite problems elsewhere in the Zone. Those sale problems could prove nettlesome.
Bundesbank in role of spectator - Germany and the Bundesbank have long been ardent inflation fighters, not waiting until inflation gets to the limit to react. But now the German inflation ‘fire department’ can only sound the alarm it cannot man the hoses. That is the jobs of the ECB. With weakness and high unemployment in the zone (over 20% in Spain) ECB policy seems unlikely to bend to the needs of Germany, despite the proliferation of Germans on the ECB staff.
More discomfort for Germans - While Germans are having a fit about bailing our Europe things are only about to get worse as rising German inflation will not be snuffed out by early and timely ECB action.
German to watch ECB make policy for everyone else - Unless there is some amazing flip-flop of power at the ECB Germany is destined to see its inflation rate climb to uncomfortable levels because the ECB will be constrained to make policy for the rest of Europe.
Das Chickens... If, weakness in the rest of Europe is severe enough to cool German growth, this scenario may not play out. But Germany has huge cost advantages in EMU and might continue to post growth even as the rest of Europe flounders under German-inspired austerity. It seems that das chickens are coming home to roost.
Running out of rope - German lending is keeping Europe from sinking but German conditions for lending are keeping Europe from growing. As a result we are in a strange ‘equilibrium’ in which no one is happy and everyone is under stress. The tensions will only get worse. The conditions placed on Ireland to bail out its banks and to thereby spare the banks in the rest of Europe put so much debt on Ireland surely it will not be able to bear it. The e-zone is coming to some sort of crisis point. Germany officials issuing statements about how they are with EMU and committed are interesting but German bail-out architecture is ripping it apart. If there is no compromise made on German conditionality I think it is clear that the strain on the zone will prove to be too much. Right now the various nations are just playing out the rope. Who can say when they will come to the end of it? And we Europe gets what does it do?
| German HICP and CPI details | |||||||
| Mo/Mo % | Saar % | Yr/Yr | |||||
| Aug-10 | Jul-10 | Jun-10 | 3-Mo | 6-Mo | 12-Mo | Yr Ago | |
| HICP Total | 0.2% | 0.1% | -0.1% | 0.7% | 1.3% | 0.9% | 0.0% |
| Core | #N/A | 0.0% | 0.1% | #N/A | #N/A | #N/A | 1.2% |
| CPI | |||||||
| All | 0.1% | 0.1% | 0.0% | 0.7% | 1.7% | 1.0% | 0.0% |
| CPIxF&E | 0.2% | 0.1% | 0.1% | 1.5% | 1.5% | 0.7% | 1.1% |
| Food | -0.3% | 0.9% | 0.0% | 2.5% | 3.8% | 2.4% | -2.7% |
| Alcohol | 0.2% | -0.1% | -0.4% | -1.1% | 0.0% | 0.2% | 3.5% |
| Clothing & Shoes | 1.3% | -1.8% | -0.1% | -2.7% | 0.4% | 0.3% | 1.5% |
| Rent &Utilities | 0.1% | 0.1% | 0.0% | 0.7% | 2.0% | 1.2% | -0.2% |
| Health Care | 0.2% | 0.1% | 0.1% | 1.5% | 0.8% | 0.5% | 0.8% |
| Transport | 0.7% | -0.5% | -0.7% | -2.1% | -0.7% | 1.8% | -2.0% |
| Communication | 0.0% | 0.2% | -0.1% | 0.5% | -0.7% | -1.8% | -1.5% |
| Rec &Culture | 0.5% | -0.1% | 0.4% | 3.2% | 1.6% | 0.0% | 1.9% |
| Education | 1.9% | 0.0% | -0.4% | 6.0% | -3.0% | 0.6% | -5.1% |
| Restaurant & Hotel | 0.2% | 0.0% | -0.1% | 0.4% | 1.5% | 1.3% | 1.7% |
| Other | 0.5% | 0.1% | 0.3% | 3.4% | 3.0% | 1.0% | 1.7% |
| Diffusion | 45.5% | 72.7% | 36.4% | ||||
| Type: | Diffusion: Current Compared to | 6-mo | 12-mo | Yr-Ago | -- | ||
Robert Brusca
AuthorMore in Author Profile »Robert A. Brusca is Chief Economist of Fact and Opinion Economics, a consulting firm he founded in Manhattan. He has been an economist on Wall Street for over 25 years. He has visited central banking and large institutional clients in over 30 countries in his career as an economist. Mr. Brusca was a Divisional Research Chief at the Federal Reserve Bank of NY (Chief of the International Financial markets Division), a Fed Watcher at Irving Trust and Chief Economist at Nikko Securities International. He is widely quoted and appears in various media. Mr. Brusca holds an MA and Ph.D. in economics from Michigan State University and a BA in Economics from the University of Michigan. His research pursues his strong interests in non aligned policy economics as well as international economics. FAO Economics’ research targets investors to assist them in making better investment decisions in stocks, bonds and in a variety of international assets. The company does not manage money and has no conflicts in giving economic advice.
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