German consumer price inflation remains unchanged in August

German overall inflation rate remained stable in August. On a year-on-year basis, the consumer price inflation remained the same at 2 percent in August. Energy prices rose slightly more strongly in the month on a year-on-year basis than in July. Nevertheless, the core inflation rate dropped to 1.3 percent from 1.4 percent.

The lower core inflation is possibly because of the fact that some federal states reduces fees for childcare as of 1 August, noted Commerzbank in a research report. For instance, In Hesse, all children attendant day care are free of charge for six hours per day; the city of Frankfurt has completely abolished the fees. Owing to this special effect, the core inflation rate dropped to 1.3 percent in the month. This signifies that there is a downside risk for the 1.1 percent forecast for core inflation in the euro area, said Commerzbank.

“This also applies to our forecast for the headline inflation of 2.1 percent, especially as the harmonised inflation rate in Germany relevant to the ECB has fallen by two tenths to 1.9 percent. In the longer run, however, underlying inflation is likely to increase in Germany and also in the euro zone as a whole due to the stronger wage increase”, stated Commerzbank.

The ECB figures showed that collective wages were up 2.2 percent in the second quarter in Germany as compared to last year. Moreover, collective wages also rose in other nations such as the Netherlands, Italy and Spain. With a certain time lag, this should also stimulate underlying inflation.

At 13:00 GMT the FxWirePro's Hourly Strength Index of Euro was neutral at 18.2972, while the FxWirePro's Hourly Strength Index of US Dollar was neutral at 28.2004. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex