German Data Review: Services Inflation Persists?
Germany’s disinflation process continues but unevenly. After July saw the headline HICP rate rise and unexpected 0.1 ppt to 2.6%, unwinding a third of fall seen in June, it plummeted to a 41-month low of 2.0% in August, and then down to 1.8% last month, below the ECB target and well below expectations. This was in spite of apparently stable or resilient services inflation (Figure 1). The latter continued to be the case in the preliminary October reading where there were also energy related base effects and fuel price rises taking the headline up a much higher than expected 2.4%, and with a higher core.
Figure 1: Services Inflation Persistence?
Source: German Federal Stats Office, % chg y/y
While a further rise in the next few months beckons, again due to energy base effects, survey data are pointing not only to more real economy weakness but significant falls in cost and output price pressures.