Economy in Brief

German inflation was delightfully low in March, falling by 0.2% month-to-month after rising by only 0.1% month-to-month in both February and January. Over the last three months, the German HICP headline pace has fallen, and is contracting at a 0.3% annual rate, compared to climbing 2.6% at an annual rate over six months, and climbing 2.5% at an annual rate over 12 months. This excellent three-month performance, of course, is also embedded in the too-hot six-month and 12-month rates of change. It serves as evidence that, as delightful as the recent data have been, German inflation continues to run over the top of the target set by the ECB for the European Monetary Area.

Domestic CPI The domestic CPI that has a different weighting scheme shows inflation up by 0.2% in March and February, compared to a 0.1% gain in January. The inflation performance for the German domestic CPI is 2.2% over 12 months, 2.7% over six months and 1.7% over three months. It also behaves much better over three months than over six or 12 months; in fact, the 12-month gain in the domestic CPI is even closer to the ECB's desired outcome. Still, the German inflation rate continues to run hot except over three months. Looking at German inflation and its CPI excluding energy, which was up 0.3% in March, compared to 0.2% in February, and no gain in January. The inflation sequence for German domestic inflation excluding energy is 2.7% over 12 months, 2.7% over six months, and then down again to 1.7% over three months.

Germany displays improved and in fact acceptable inflation over the last three months; however, over a broader timeline, it still isn't good enough for the target that the ECB has for the EMU area. Still, if we look at diffusion statistics which assess the breadth of inflation acceleration across periods, we see the diffusion over 12 months is only 27%, over six months it's only 36%, and over three months it's only 36%. Diffusion at 50% would indicate acceleration and deceleration are balanced. But with diffusion below 50%, that's telling us that inflation is actually decelerating across more categories than it's accelerating. Germany displays impressive decelerating statistics across these categories for 12-months compared to 12-months ago, for 6-months compared to 12-months, and for 3-months compared to 6-months. The reality is that inflation continues to overshoot, that is simply the reality that inflation is stubborn in several important categories where it refuses to fall enough to register the desired result of 2% overall.

However, very clearly inflation in Germany is not running away. It is slightly excessive, and the overshoot depicted by the domestic headline at 2.2% would probably be acceptable in these times, but the overall 2.5% for the HICP and for the CPI excluding energy at 2.7% are still excessive.

The Consumer Price Index edged 0.1% lower in March after rising 0.2% in February and 0.5% in January. A 0.1% rise had been expected in the Action Economics Forecast Survey. The y/y increase in the headline CPI fell to 2.4% from 2.8% in February. It was the weakest y/y gain in six months and was below the 9.1% peak in June 2022. The CPI excluding food & energy rose 0.1% following increases of 0.2% in February and 0.4% in January. A 0.3% rise had been expected. The 2.8% y/y gain is the weakest in core prices in four years and below the 6.6% peak in September 2022.

Energy prices declined 2.4% (-3.3% y/y) last month after a 0.2% February rise. Gasoline prices declined 6.3% (-9.8% y/y) after falling 1.0%. Fuel oil prices weakened 4.2% (-7.6% y/y) after rising 0.8% in February. Natural gas prices jumped 3.6% (9.4% y/y) following a 2.5% gain, and electricity prices gained 0.9% (2.8% y/y) after rising 1.0% in February.

Food prices rose 0.4% (3.0% y/y) in March after a 0.2% February increase as egg prices strengthened 5.9% (60.4% y/y) following a 10.4% gain. Meat, poultry & fish prices rose 0.6% (3.1% y/y), after a 0.5% rise, while dairy product prices rebounded 1.0% (2.2% y/y) and reversed February’s 1.0% decline. Cereal & bakery product costs eased 0.1% (+1.1% y/y) after February’s 0.4% rise while fruit & vegetable prices dropped 0.5% (-0.7% y/y), the same as in both of the prior two months. Nonalcoholic beverage prices rose 0.6% (2.4% y/y) in March after falling 0.5% in February.

Goods prices less food and energy eased 0.1% both m/m and y/y in March after rising 0.2% in February. Prices of used cars and trucks fell 0.7% (+0.6% y/y) last month after rising 0.9% in February while new vehicle costs improved 0.1% (0.0% y/y) after slipping 0.1% in February. Apparel prices increased 0.4% (0.3% y/y) following a 0.6% gain while appliance prices eased 0.1% (-2.5% y/y) following a 0.5% increase. Home furnishings prices held steady (-0.3% y/y) after rising 0.2% in February. Recreation product costs fell 0.3% (-2.3% y/y) in March after falling 0.7%. Education & communication product costs rose 0.5% last month (-5.7% y/y) after falling 0.2% in February.

Services prices less energy improved 0.1% (3.7% y/y) last month following a 0.3% March gain. Shelter prices rose 0.2% (4.0% y/y) last month after a 0.3% rise as owners equivalent rent of primary residences increased 0.4% (4.4% y/y) after four consecutive 0.3% increases. The cost of lodging away from home fell 3.5% (-2.5% y/y) after improving 0.2% in February. Rents of primary residences gained 0.3% (4.0% y/y) for the fourth consecutive month. Transportation service prices fell 1.4% (+3.1% y/y) after falling 0.8% in February reflecting a 0.8% decline (+7.5% y/y) in the cost of motor vehicle insurance. Public transportation costs declined 4.2% (-3.5% y/y) after falling 3.4% in February. Prices of medical services increased 0.5% (3.0% y/y) after rising 0.3% and the cost of recreation services edged 0.1% higher (4.3% y/y) after increasing 0.8 in February.

The Consumer Price figures can be found in Haver's USECON database. The expectations figure is contained in the AS1REPNA database.