Germany Finalizes Inflation with Acceleration
German inflation is accelerating, rising month-to-month by 0.2% in May, by 0.3% in June, and by 0.5% in July. A broader acceleration sees the HICP up by 2.7% over 12 months, up at a 3.5% annual rate over six months, and up at a 4.1% annual rate over three months. Domestic CPI inflation excluding energy is on a rising path, up by 2.7% over 12 months, up at a 2.6% pace over six months then clearly accelerating, rising to a 3.1% annual rate over three months. The domestic headline inflation rate provides a counter-point, rising 2.3% over 12 months, accelerating ever so slightly to 2.4% over six months then sitting back at a 2% pace over three months.
Germany is in step with the other large economics in Europe as Spain and Italy both report core inflation accelerating over six months compared to 12-months and for 3-months compared to 6-months. Germanys 3.1% ex-energy rate increase is slower than Spain’s and Italy’s where the core rates rise by 4.3% and 3.5%, respectively.
The numbers on inflation are disappointing but not all threats are worsening. Brent oil prices are not stoking pressures as oil prices fell by 7% month-to-month in May, rose by 0.3% m/m in June and rose by 0.1% m/m in July. There is also good news from diffusion as inflation only accelerates year-over-year compared to a year ago in 18% of the major industry groups. Over six months, inflation accelerates in only 45.5% of the groups compared to their 12-month pace. Over three months, inflation accelerates in 36.4% of the categories compared to their pace over six months. So, the inflation acceleration Germany records is partly a matter of ‘bad luck’ in the sense that inflation is heating up the most in the categories that carry the largest weights in the index. Similarly, monthly inflation shows diffusion below 50% in two of the three most recent months.
Inflation is accelerating from 12-months to 6-months to 3-months for transportation equipment. It accelerates in 6-months and 3-months for ‘other’, recreation & culture, and transportation equipment again.
Inflation decelerates from 12-months to 6-months to 3-months for alcohol, health care, communications, and restaurants & hotels.
These observations suggest that the underlying trends are still mixed despite whatever their headline trends may be.
But the persistence of core inflation acceleration across the large euro area countries is a less reassuring phenomenon.
On balance, the German report solidifies a difficult inflation situation for Germany and occurs in a European environment in which core inflation is more broadly a worry.
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.