Flash German HICP inflation likely to post 0.2% growth yoy in July

Germany's HICP inflation slowed sharply from 0.7% yoy in May to 0.1% yoy in June with national CPI at 0.3% yoy in June compared to 0.7% yoy in May.

"The HICP index is expected to recover 0.2% yoy in July. The weak energy prices is likely to continue to suppress headline as gasoline and brent crude continue to remain weak. But seasonal variations in the core components should drive the expected marginal rise in HICP", said Societe Generale in a report on Thursday.

The softening of prices was a result of a continued decrease in energy prices and lower prices paid for services. The bnak notes rate of inflation at a disaggregate level, energy component fell from -5.0% yoy to -5.9% yoy in June, cutting 10bp from the headline alongside a slower increase in services which fell from 1.5% yoy in May to 0.9% yoy in June, cutting 31bp. Food inflation rose 1.0% yoy slightly lower compared to 1.4% yoy in May. 

On the core components front, prices paid for services were noticeably lower due to the decline in prices paid for package holidays (due to the calendar effect), but the services component was underpinned by an increase in net rent exclusive of heating expenses. Prices of goods fell by 0.5% led by decreases for telephones, consumer electronics and information processing equipment.

Societe Generale estimates the German HICP inflation to average 0.3% in 2015 and 1.7% in 2016, while the core metric should average at 0.9% in 2015 and 1.2% in 2016.