German inflation softens unexpectedly in October, euro area inflation likely weakened

German inflation figures for the month of October came in softer than expected. The headline HICP inflation in Germany decelerated surprisingly to 1.5 percent in the month of October from September’s 1.8 percent. Inflation was also down in Spain to 1.7 percent in the month from September. This signifies that the euro area inflation might have decelerated to 1.4 percent, as compared with the prior forecast of a rise to 1.6 percent, noted Nordea Bank in a research report.

The data from German states shows that prices rises were subdued and annual inflation decelerated in most sectors. The service sector’s preliminary inflation data showed a year-on-year print of just 1.2 percent, as compared with September’s 1.6 percent.

Therefore, it appears that the softness in Germany and in the euro area core inflation, which was noted in September, was probably not because of one-time factors, stated Nordea Bank. Thus, the upward trend in core inflation that was recorded earlier in 2017 has taken a breather and therefore there are now increased risks to the downside to the inflation projection.

The low inflation definitely merits for continuation of easy monetary policy. As the European Central Bank’s last week made the tapering decision that extends the asset purchase program at least until September 2018 and most possibly until the end of next year, it certainly creates a risk that first hikes in interest rates would come later than was expected earlier, added Nordea Bank.

At 17:00 GMT the FxWirePro's Hourly Strength Index of Euro was bearish at -92.379, while the FxWirePro's Hourly Strength Index of US Dollar was neutral at -47.854. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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