German inflation remained unchanged year-on-year in April, euro area core rate likely to have dropped

German inflation stayed the same in the month of April. The headline consumer price inflation remained unchanged at 1.6 percent on a year-on-year basis. While the prices for energy and food have risen slightly stronger on a year-on-year basis, the core rate, which excludes energy and food prices, dropped by one tenth to 1.4 percent.

Given today’s German figures and the Italian core inflation rate which has also fallen, the projections for euro area feel confirmed. There, too, core inflation is expected to have fallen a bit to 0.9 percent, noted Commerzbank in a research report.

However, in the medium term, underlying inflation in Germany and in the euro area as a whole is expected to pick up. The German economy, for years, has been growing above potential, that is above the long-term capacity frontier – which should result in increasing wage pressure.

The employers and unions in the metal and electric sectors, also in the public sector agreed to quite substantial rises in collective wages in 2018. Even if these have not risen any stronger compared to wage rises in the past ten years, they are still at the top of earlier wage agreements.

“Other sectors are likely to follow these examples, so that according to our estimates collective wages should increase by almost 3 percent in 2018 and by slightly more than 3 percent in 2019”, added Commerzbank.

At 16:00 GMT the FxWirePro's Hourly Strength Index of Euro was slightly bearish at -74.4882, while the FxWirePro's Hourly Strength Index of US Dollar was highly bullish at 101.825. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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