German CPI data brings no relief for ECB

Inflationary pressure in Germany remains low. Based on the results of several regional states, German headline inflation increased to 1.4% YoY in December, from 1.3% in November. On the month, German prices increased by 0.4% MoM. Based on the harmonised European definition (HICP), headline inflation decreased to 1.2%, from 1.6% in November. On the month, German HICP increased by 0.5%. Looking at the available components at the regional levels shows that the increase in headline inflation was mainly driven by higher prices for food, alcohol and tobacco and household energy. These factors more than offset the negative base effect from lower oil prices. The movement of two inflation measures into opposite directions can be mainly explained by different revision moments and consequently different base effects. In fact, the most important take-away from today’s inflation data is the monthly change which was the lowest December increase since 2008. Consequently, today’s German inflation data provide little arguments for the ECB to relax its fight against deflation in the Eurozone.