Carsten Brzeski, chief economist at ING, notes that the German headline inflation drops to its lowest level since April 2018 as headline inflation came in at 1.5% year-on-year in March, from 1.7% in February.
Key Quotes
“The national inflation measure dropped to 1.3% YoY, from 1.5% in February.”
“The main inflation drivers were lower food prices, continued price drops in communication and lower prices for leisure and package holidays.”
“Yesterday, ECB president Mario Draghi said that the increase in Eurozone headline inflation towards the ECB’s medium-term aim had been “delayed rather than derailed”. Eventually, however, the ECB still believes in higher inflation on the back of stronger wages. Unfortunately, the German experience casts doubts about the ECB’s view that the pass-through of higher wages on inflation has only been delayed and not derailed.”
“In fact, the German experience shows that even though the transmission from a tighter labour market to stronger wage growth has, since 2016, finally matched previous periods, the transmission from higher wage growth to faster inflation still barely exists. Margin squeezing to maintain (international) market shares, more price transparency due to digitalization and more competition and mobility in the service industry (also due to digitalization) could be the main drivers eventually debunking the textbook relationship between wage growth and higher inflation.”
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