German PPI Inflation Settles Down

German PPI inflation fell by 0.2% in February for the headline series, ‘PPI excluding construction.’ The drop marks a string of declines in German headline PPI inflation. For the PPI excluding energy, inflation rose by 0.1% in February after a 0.1% rise in January and no change in December. This is a clear winning streak for German inflation trends at the producer level.

Inflation results from 12-months to 6-months to 3-months show German headline PPI inflation decelerating steadily and somewhat aggressively from an increase of 0.8% over 12 months to a -0.6% annual rate over six months to a -2.5% annual rate over three months. For the PPI excluding energy, German inflation is up 1.5% over 12 months, which eases to a 0.5% annual rate over six months, and then stabilizes but accelerates slightly at a 0.7% annual rate over three months. The performance and behavior of headline inflation obviously shows a great deal more weakness than in the PPI excluding energy. But both are well-behaved.

Oil price trends Brent oil prices declined by 10% over the previous year and have declined by 8% over the most recent 12 months. Over six months they're falling at a 9% annual rate, but then over the last three months they've been increasing at a 9.5% annual rate. Monthly Brent oil prices fell slightly in December, fell by 3.8% in February, but rose by 6.5% in between, during the month of January. The oscillation in oil prices makes it just a little bit difficult to nail down the impact of oil prices on the inflation numbers, but generally oil has been weak and there has only been a slight amount of pressure from oil recently compared to past trends.

German PPI component trends German PPI components are not seasonally adjusted; they generally show inflation is relatively stable. For consumer prices, the 12-month, 6-month and 3-month pace is just under 3%. For investment goods, inflation is accelerating slightly from 2% over 12 months to a 4.2% annual rate over three months. Intermediate goods display growth rates for inflation that fluctuate between -0.9% at an annual rate over six months to +1.4% at an annual rate over three months. The PPI trends compare to CPI trends that are really quite flat with the headline CPI between 2.5 and 2.2% at an annual rate across horizons and the CPI excluding energy at a pace of expansion between 2.4% and 2.7%.

All-in-all German inflation appears to be contained and at a relatively low level. This should be a report that the European Central Bank is pleased with.

Sector inflation in EMU through January PPI inflation viewed in the EMU by sector across individual countries is up to date only through January; however, when we look at the trends through January, we see a clear tendency for inflation to rise. The diffusion calculations are largely showing values above 50% which means that inflation is accelerating across more categories by country than decelerating. Capital goods are the exception although there the diffusion reading of 36.4% over 12 months rises to 90.9% over 6 months and stays at 72.7% over 3 months. The table also shows the median of the inflation rate on various tenors also by category. Year-over-year for consumer goods, inflation acceleration is indicated as steady with diffusion at 60%; but the median actual gains show more pressure, acceleration is from 2.3% over 12 months to a 4.2% pace over 3 months. The twelve- to six- to three-month growth rates show clear acceleration in place for median prices for capital goods inflation over 12 months is at a 1.7% pace that moves up to 2.1% over 6 months and then to 2.5% over 3 months. Median inflation steadily accelerates from 12-month to 3-months, just as for consumer goods. Diffusion calculations rise above 50% confirming acceleration is broad-based. For intermediate goods, inflation rates are lower than for other categories, at 0.3% over 12 months and 0.3% over 6 months, then up to 0.9% over 3 months. Diffusion statistics are still high at 100% over 12 months, down to a neutral 50% over six months then back up to 70% over 3 months. Commodity price inflation is being held at bay. But inflation across capital and consumer goods is showing more momentum and pressure. Across the European Monetary Union for these 11-early reporting countries on data available through January, inflation trends are steady and mostly moderate. But trends show high diffusion readings that tell us that inflation pressure are intensifying. Still, inflation remains on a relatively moderate gradient overall and controlled. Good German inflation performance extends through February.