Germany: Small uptick in headline inflation - ING

Based on the results of eight regional states, German headline inflation increased for the first time since November last year, coming in at 1.6% year-on-year in March, up from 1.4% YoY in February, points out Carsten Brzeski, Chief Economist at ING.

Key Quotes

“According to the harmonised European definition (HICP), the measure more relevant for ECB policy making, headline inflation accelerated to 1.5% YoY, from 1.2% in February.”

“At first glance, stronger German inflation data looks like a welcome argument for ECB hawks as it seems to confirm their view that prices are finally accelerating. However, on second glance German inflation data is actually providing further evidence that even in the cyclically most advanced economy of the Eurozone, a wage-price-spiral is hardly noticeable.”

“In fact, today’s increase in headline inflation was mainly driven by higher food prices and prices for leisure activities and holiday package deals. Core inflation measures, where available, were still lower than January. As the Easter vacation break this year started in March and not in April as last year, this seasonal effect is the main driver behind the stronger annual data. Once again, it’s the Easter bunny effects blurring the German inflation picture.”

“All of this means that the current economic controversies on whether or not the Phillips curve is broken and whether higher wages still lead to higher inflation will not be solved anytime soon.”