Germany: Subdued inflation leaves the ECB slightly baffled – ING

Carsten Brzeski, chief economist at ING, notes that the German headline inflation came in at 1.7% year-on-year in February, with the national inflation measure closing the recent gap with the European measure and increased to 1.6%, from 1.4% YoY in January.

Key Quotes

“The main inflation drivers were the delayed pass-through of higher oil prices as well as higher food prices, a late effect of last summer’s drought.”

“Today’s German inflation data do not bring any new guidance for the ECB. Stable headline inflation and low core inflation simply mean that it will still take a while before it becomes clear in which direction Eurozone inflation will be heading.”

“Returning to Germany, today’s inflation data illustrate that the drop in global oil prices since late-September has still not fully reached German consumers. While global oil prices are roughly speaking back to their February 2018 levels, prices for heating oil were up by some 15% YoY in most German states.”

“While today’s inflation data might still leave the ECB a bit baffled, it is good news for the German economy. Together with the strong labour market and high consumer confidence, low inflation is a welcome shield against the current high wave of external uncertainties.”