German headline inflation slows slightly in January, core inflation likely to rise slightly in near future

German headline inflation slowed a bit in the month of January. Consumer price inflation fell by one tenth to 1.6 percent at the start of 2018. The subdued rise in energy prices might not be entirely countered by slightly stronger increase in food prices. Also, there were some special effects. The sharp increase in prices for package holidays has eased, and retailers have already offered high discounts on winter clothing and footwear in January because of the mild winter weather this year. Without these special effects, core inflation might not have stayed at 1.5 percent, but would have been one and a half tenths higher, noted Commerzbank in a research report.

Core inflation rate is expected to rise slightly in the near future. The economy of Germany is booming. The shortage of skilled workers has ceased to be an issue for individual sectors only. This, along with rising inflation expectations, should give the trade unions more bargaining powers in wage negotiations, stated Commerzbank.

The present wage round in the metal industry shows that the wind has changed and that the workers’ representatives are stepping up negotiations. This should bring the era of wage moderation to an end. The upward trend in wages should increase and be reflected in higher underlying inflation. Inflation gauged by the harmonized rate dropped to 1.4 percent in January.

“For the euro zone inflation published tomorrow, we therefore forecast a decline from 1.4 percent to 1.2 percent”, added Commerzbank.

At 17:00 GMT the FxWirePro's Hourly Strength Index of Euro was highly bearish -115.595, while the FxWirePro's Hourly Strength Index of US Dollar was slightly bullish at 72.3929. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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