Horrible data from Germany. A significant jump in an important indicator

According to the data of the Federal Statistics Service inflation In Europe's largest economy, the HICP rose to 3.8 on an annualized basis in December, up from 2.3 percent. A month ago. CPI inflation increased from 3.2 to 3.7 percent. Each year. Monthly inflation increased by 0.1%.

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The increase in inflation is largely due to this Effect of one-off gas and electricity subsidies introduced in December 2022 – As a result of war market shock. A similar mechanism worked in France, where inflation also increased in December. However, the jump was smaller as the HICP rate was 4.1%. (compared to 3.9% in November), and CPI 3.7%. (compared to 3.5% a month ago).

As the Financial Times pointed out The new data may influence the decision of the European Central Bank. So far everything was going in the right direction. The slowdown in consumer price growth in the eurozone continues for six months, with inflation nearing the ECB's 2 percent target.

Bartosz Wałecki, analyst Michael / Ström Dom Maklerski, notes in his commentary that The hearing was determined to be consistent with the consensus. – The trend of decreasing annual inflation has stopped. Every month we notice a price increase of 0.1%. The high rate in December can be attributed to energy prices. Core inflation, on the other hand, has been declining for another month and is already below the broader CPI. In December it was 3.5%. y/y against 3.8 percent a month earlier.

The question does not change much in the context of the ECB's activities. Future monetary policy will be determined by further incoming data from the Eurozone economies. The ECB is still in pause mode and is partially reducing expectations for a rapid rate cut, the expert notes.

We will know whether Europe is moving closer or further away from the target on Friday when we get data for the entire eurozone. However, the forecasts of experts are not optimistic, Analysts expect the rate to be 3% in December, which means a noticeable increase compared to November, when it was 2.4%.

Carsten Brzeski from ING Bank in an interview with “FT” assesses that high inflation in December and the prospect of further price increases “mustto dampen market expectations of interest rate cuts“

Inflation in Germany may increase in the coming months because The German government is closing the money tap. The reason is the budget hole, which already reaches 60 billion euros. This decision was influenced by the recent decision of the German Constitutional Court, which prevented the exclusion of foreign funds from the deficit. Experts suggest that prices should rise more slowly.

The average annual inflation in Germany is decreasing, despite the bad December data. In 2023, it was 5.9%, and in 2022 it reached a record 6.9%. However, things will be better in 2024. The German Council of Economic Experts predicts an average inflation rate of 2.6 percent in 2024. The Ifo Institute expects 2.2 percent. – reports businessinsider.de.

It should be noted here that despite the increase in December, Inflation has been falling almost continuously from October 2022 to now. It peaked at 8.8%. How big a jump this was can be seen from the fact that before the start of the war the German economy suffered from deflation, and in the last 10 years it only reached the level of more than 2% 2-3 times.