Germany: Inflation hits a five-month low in December
Latest reading: Harmonized consumer prices increased 2.0% in annual terms in December, following a 2.6% rise in the prior month and matching the ECB’s 2.0% target.
Relative to the previous month’s figures, there were milder price pressures for food and non-alcoholic beverages (+1.7% in annual terms vs +2.0% in November), transportation (+2.6% vs +3.5% in November), housing and utilities (+1.2% vs +1.3% in November) and recreation (+0.9% vs +3.0% in November). In contrast, price pressures were higher for restaurants and hotels in December (+3.6% vs +3.5% in November).
Meanwhile, consumer prices increased 1.8% in December, following a 2.3% increase in the prior month.
Lastly, harmonized consumer prices rose 0.15% in December on a month-on-month basis, following a 0.45% fall in the previous month.
Panelist insight: Commenting on the outlook, ING’s Carsten Brzeski stated:
“Looking ahead, German headline inflation looks set to drop further over the coming months and will remain below the 2% mark, before re-accelerating again later this year. In the shorter run, disinflationary drivers will prevail, like the stronger euro and favourable energy base effects, as well as domestic and foreign companies re-channelling products from the US to Europe at dumping prices. […] What complicates the German inflation picture a bit are recent policy measures. The VAT reduction for food sales by hospitality businesses will probably improve profit margins in the hospitality sector rather than bring down inflation, while the latest increase in the minimum wage could also fuel longer-term inflationary pressures.”