German headline inflation slows in February on decline in food and energy prices

The headline inflation in Germany decelerated in the month of February on a sequential basis. The consumer price index dropped by two tenths to 1.4 percent from 1.6 percent. This was mainly due to the marked reduce price pressure on food and energy, with the latter being hardly more expensive than in February. Meanwhile, the core rate rose a bit to 1.6 percent; however, this was not sufficient to counter the marked declining price pressure on energy and food. On the contrary, the inflation rate in Spain has increased surprisingly by five tenths.

Following the steady fall in inflation rate in Germany since November, the bottom is expected to have been reached in February. In the months ahead, inflation is expected to gradually rise again and average at 1.8 percent in 2018, noted Commerzbank in a research report. Meanwhile, food and energy prices are expected to rise again robustly. Moreover, the core inflation rate is also expected to rise.

The German economy is booming and there is a shortage of manpower. The shortage of skilled workers has long since stopped to be an issue for individual sectors. This, along with rising inflation expectations, should provide the trade unions more bargaining power in wage negotiations. The upward trend in wages should thus rise and be reflected in higher underlying inflation, stated Commerzbank.

Meanwhile, the harmonized inflation rate for Germany also dropped by two tenths to 1.2 percent in February. But the inflation rate for Spain surged surprisingly from 0.7 percent to 1.2 percent.

“For this reason, there are upside risks for our forecast of 1.1 percent for euro zone inflation published tomorrow. Core inflation is likely to have remained at 1.0 percent”, added Commerzbank.

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