German headline inflation rate dropped again in March, contrary to expectations. The provisional estimate of the Federal Statistical Office showed that the consumer price inflation eased to 1.3 percent in the month, two-tenths below February’s print. Energy prices were not the driving factor this time.
Nevertheless, this was partially countered by a markedly lower rise in food prices. Significantly, the inflation rate for all other goods and services, the core inflation rate, also dropped to 1 percent from 1.3 percent. This might slightly understate the underlying price trend, as this year the Easter holiday-related price rise in package holiday does not fall in March as in 2018 but in April. However, even if one excludes this impact, there is a marked fall in the core rate, noted Commerzbank in a research report.
This signifies that it remains the case that companies have not yet passed on to their customers their higher wage costs, which have surged in the past year. The slight upward trend in the core rate seen since last autumn has once again proved to be a false signal, especially as the final February figure was downwardly revised.
“With regard to the figures for the euro zone due on Monday, a decline in the core inflation rate to 0.9 percent is to be expected solely due to the effect on package holidays. From this point of view, there is still no pressure on the ECB to normalize its monetary policy. We do not expect any rate hikes this year or next”, added Commerzbank.
At 18:00 GMT the FxWirePro's Hourly Strength Index of Euro was neutral at -38.1528 while the FxWirePro's Hourly Strength Index of US Dollar was neutral at 48.0524 more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex
