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  • Annual HICP in Germany rose sharply in January amid changes in VAT. 
  • EUR/USD trades in the negative territory a little below 1.2100.

Inflation in Germany, as measured by the Consumer Price Index (CPI), was 0.8% in January, Destatis reported in its flash estimate on Thursday. Moreover, the annual CPI rose to 1% from -0.3% in December.

Additionally, the Harmonized Index of Consumer Prices (HICP), the European Central Bank’s (ECB) preferred gauge of inflation, jumped to 1.6% on a yearly basis and surpassed the market expectation of 0.5% by a wide margin. However, this surprising increase in inflation is largely attributed to the changes in VAT that came into effect in January.

In July, Germany reduced the VAT to 16% from 19% and the standard rate to 5% from 7% until the end of December due to the coronavirus crisis. 

Market reaction

The EUR/USD pair showed no immediate reaction to this report and was last see posting small daily losses at 1.2096.