German September inflation below and not even close to 2%

Inflationary pressure in Germany is still hard to find. Based on the results of six states, German headline inflation dropped to 1.4% YoY in September, from 1.5% YoY in August. On the month, German prices remained unchanged%. Based in the harmonised European definition, headline inflation remained unchanged at 1.6%. Headline inflation is now at the lowest level in almost three years. Looking at the available components at the regional levels shows that headline inflation dropped on the back of negative base effects from oil prices and healthcare costs. Moreover, the usual drop of prices for leisure activities and packaged holidays after the summer vacation period also contributed to benign inflation developments in September. It looks as if these days, the only inflationary forces in Germany can be found in Bavaria. To be precise: in Munich at the Oktoberfest. Between 2002 and 2012, the price of one litre of beer rose by 42%. In the same period, beer prices in restaurants were only up by around 20%. On a somewhat more serious note, inflationary pressures in the Eurozone’s biggest economy are still hard to find. The often expected catching up of German prices and wages is still not happening. For the Eurozone, this has at least two implications: i) rebalancing remains a cumbersome process and ii) the ECB can continue with its highly accommodative monetary policy.