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German CPI at 0.4%

By Lisa Harris August 30, 2016
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The German consumer price inflation was reported steady in August after consecutive slides in the previous 3 months, this was revealed in preliminary data released by Destatis on Tuesday. The consumer price index which grew by 0.4% year-on-year same rate it posted in July, economists had however forecasted a 0.5% rise in inflation. The 0.4% rise in inflation is also the highest since January, when it posted a 0.5% increase. In June annual inflation reported a positive 0.3%.

Prices are expected to be unchanged for the month compared with the consensus forecast of a 0.1% gain. The data will ease immediate Bundesbank concerns that inflation could move sharply higher, although they will continue to watch developments closely. Energy prices slipped by 5.9% in the year to August from the previous month as crude prices strengthened, while food prices edged higher by 0.9% this year from a previous 1.1%. A persisting fall in goods prices was also reported in an annual decline of 0.6% from 0.7% in July, inflation rate fell lower in the services sector from 1.4% to 1.3%. This recent inflation release will reduce worries over the risk of growing domestic inflationary pressure, mostly resulting from the absence of further growth in the services sector rate.

Events surrounding the Eurozone will be watched more closely as more weak data would increase pressure for further ECB monetary stimulus, although Spanish flash data was stronger than expected. The German Bundesbank is now very sensitive to inflation in Germany and real interest rates are still in negative territory, due to the fact that the German benchmark 10-year yields remain significantly below zero. In this environment, the central bank could very quickly start to sound warnings over monetary policy and, at the very least, call for a tapering of the bond-buying programme, which could trigger a potential clash with the ECB.

The harmonized index of consumer prices, or HICP, rose by 0.3% annually in August following 0.4% growth in July. Economists had expected a 0.1% rise. On a month-on-month basis, the HICP decreased 0.1% in August after a 0.4% increase in July, economists had expected 0.5% gain.

Destatis is now ready to release the final figures for August CPI and HICP on September 13.

In the moments after the release, the Euro was slghtly as the data failed to provide major uptick momentum for the currency, although the EUR/USD quickly found support as it approached the 1.1160 level to quickly arrest its descent with little change from its previous level. German bunds pared losses to stand only marginally lower on the day, while the DAX index held gains a little above 1% on the day.

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By Lisa Harris August 30, 2016

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