Source: Bloomberg
Source: Bloomberg
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Has inflation returned to Germany?

Calls for German core inflation to fall back down would give ammunition to ECB doves

March 14, 2017 10:42 PM (UTC+8)

February’s headline year-on-year inflation print of 2.2% was the highest in five years and the subject of dramatic headlines in the German press. The main drivers were a 44% rise in heating oil and a 16% rise in gasoline prices. Most of Germany’s CPI for the past several years can be explained by oil and commodity prices. But at today’s oil price of $48, we have seen 10-year inflation expectations embedded in bond yields ranging from 0.4% to 1.3%. Right now we are at the top end of the range, with so-called breakeven inflation at 1.25%. A number of Wall Street strategists are now calling for German core inflation to fall back to close to 1% during the next six months. That would give ammunition to the European Central Bank doves who want to maintain an easy monetary policy.

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