Germany: Expect to see a rebound in the headline inflation rate - Rabobank

Analysts at Rabobank suggest that German inflation numbers for March will receive their usual scrutiny this morning, even more so because we saw considerable divergence between headline and core inflation in the February figures.

Key Quotes

“The harmonized index fell to 1.2% last month, the lowest level since November 2016, on the back of lower energy and food price inflation. However, the core measure ticked up to 1.5%, close to the upper bound of the range we have seen since early 2017. In March we would expect to see a rebound in the headline inflation rate. For one because the fall in energy costs (in YoY terms) has come to an end with the rebound of oil prices. But also because the dip in food prices we saw in February is unlikely to stick. A headline figure of around 1.5% seems feasible in that respect.”

“The evolution of core inflation remains somewhat of a question mark and unfortunately an official national figure will not be released today. The labour market is tighter than ever and the recent IG Metall wage deal has highlighted the prospect of accelerated wage growth this year and next. However the recent figures (2017Q4) have actually been pointing to a slowdown in wage growth. Consumers are nevertheless upbeat, which is also reflected in the latest GfK consumer confidence indicator for March/April, released yesterday. But the ‘good news’ is that the timing of Easter (it fell in April last year, similar to this year) should not cause major waves in the inflation data this month (although it will do so in the next month!). Altogether this seems to be a recipe for a ‘status quo’ on German core inflation.”