German Inflation Slows From Six-Year High as ECB Nears QE Exit

(Bloomberg) -- German inflation slowed more than expected in November, a challenge to the European Central Bank’s view that euro-area price growth is robust despite economic headwinds.

Consumer prices in the region’s largest economy rose an annual 2.2 percent, down from the 2.4 percent in October that was the highest in more than six years. The rate was below the 2.3 percent estimate in a Bloomberg survey and much of the impetus came from energy costs that are already starting to fade, highlighting how the ECB will have to move very gradually toward unwinding its crisis-era stimulus.

German Inflation Slows From Six-Year High as ECB Nears QE Exit
What Our Economists Say...
“While the headline may drop again in December, the extremely low rate of unemployment should put upward pressure on underlying price increases and we expect them to accelerate next year.”
-- David Powell, Bloomberg Economics. See the GERMANY REACT

Key Insights

  • Inflation data from individual German states including Saxony, Brandenburg, Bavaria, Hessen, North Rhine Westphalia and Baden Wuerttemberg showed double-digit gains in prices for heating oil and other fuels.
  • The surge in energy prices may have been exacerbated by a dearth of fuel supplies in Germany’s industrial southwest as record-low water levels close off many parts of the key transport route for fuels.
  • Recent gains are poised to reverse after oil prices fell below $50 a barrel for the first time in more than a year -- that will feed into headline inflation in coming months
  • Germany may have additional price pressures that many of its fellow member states don’t -- a separate report on Thursday showed the nation’s unemployment rate unexpectedly dropping to a record-low 5 percent, potentially bolstering wage growth.

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  • The European Commission said its measure of economic confidence in the euro area slipped for an 11th straight month in November, further damping expectations that the currency bloc will rebound from a sharp growth slowdown
  • While the ECB is poised to end net asset purchases on Dec. 13, President Mario Draghi and chief economist Peter Praet have argued significant stimulus is still needed to rekindle underlying price pressures.
  • The ECB highlighted some of the risks the euro area faces when it published its Financial Stability Review on Thursday -- singling out Italy as an example of the dangers of failing to convince investors over debt sustainability

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