German Inflation Unexpectedly Hits Three Year High, Driven By Rising Energy, Food Prices

Tyler Durden's picture

In what may be both good and bad news for the ECB,  German inflation jumped more than expected in December, hitting the highest level in more than three years, according to preliminary data. German consumer prices, harmonized with other European countries (HICP), rose by 1.7% on the year, more than double the November increase of 0.7%, the German Federal Statistics Office said.

This was the highest annual inflation rate since July 2013 and stronger than the consensus forecast of 1.5%; it was just shy of the ECB's inflation target of 2.0%

On a non-harmonized basis, German annual inflation picked up to 1.7 percent after 0.8 percent in November; prices rose 0.7% on the month, also higher than the 0.6% expected by consensus.

Rising energy prices and higher food costs were the strongest drivers behind the overall increase, a breakdown of the non-harmonized data showed. The surge in energy prices will only lead to more inflationary pressure now that the lowest prices of 2016 have been "anniversaried."

"These are really strong inflation figures," DZ Bank economist Michael Holstein said, adding that negative base effects of past oil price drops were now fading out. Therefore, German inflation is likely to reach the ECB's target of nearly 2 percent in the coming months, he said. 

The data means that the wider euro zone figure, due on Wednesday, will probably come in stronger than expected as well.

A strong recovery in German inflation would give conservatives like Bundesbank's President and ECB rate-setter Jens Weidmann more scope to argue for winding down the ECB's bond-buying program more quickly, Reuters notes. For Mario Draghi it will be good news in the he can claim victory over deflation; on the other hand it will mean an even faster arrival of more tapering and potentially rate hikes, a process which would likely lead to the next deflationary slide following a spike in bond yields which price out ECB bond market intervention.

Still, price pressures elsewhere in the euro zone remain more muted than in Germany, she added, pointing to French annual HICP inflation only creeping up to 0.8 percent in December after 0.7 percent in November. "Accordingly... we doubt that this will lead the ECB to reconsider its policy support," McKeown said.

Meanwhile, while rising prices may be good news for the ECB from a pan-euro zone perspective, they do not necessarily bode well for the German economy. It has been relying on private consumption, a booming construction sector and government spending for growth.

"Indeed, a temporary energy-related rise in inflation this year will dent real incomes growth, which is a key reason why we expect the economic recovery to slow," McKeown said.

The German government expects the economy to have grown by 1.8 percent in 2016 and predicts growth to slow to 1.4 percent this year, mainly due to fewer workdays and weaker exports. Still, economists expect Germany's labor market to remain robust in 2017.

In other news, the Federal Labour Office said on Tuesday that unemployment fell more than expected in December, keeping the jobless rate at a record low. "The strong increase in employment that has been going on for a long time slowed since the summer months, but demand for new workers remains at a high level," said Frank-Juergen Weise, head of the Federal Labour Office. The seasonally adjusted jobless total fell by 17,000 to 2.638 million, the Labour Office said. That was more than three fold the 5,000 consensus forecast.

The adjusted unemployment rate remained at 6.0 percent, the lowest level since German reunification in 1990. In 2016 as a whole, a record 43.4 million people were employed in Germany - 1 percent more than in 2015 and the tenth consecutive year that the workforce expanded.

"Job creation should continue this year," said Joerg Zeuner of KfW bank. "The expected rise in unemployment due to immigrants has so far not materialized."

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HokumYTrader's picture
HokumYTrader (not verified) Jan 3, 2017 8:23 AM

A long as they have stawks they will be OK.

VinceFostersGhost's picture



German Inflation Unexpectedly




I would think the Germans should be the worlds experts on inflation.


Maybe they could get some tips from Zimbabwe?

LawsofPhysics's picture

Global Weimar is already here, just well hidden in a derivatives "market"...

Cognitive Dissonance's picture

If I have a glass half filled with ice tea and someone pours water in the glass, I no longer have ice tea. I have ice tea colored water. But the dull and inattentive mind might not notice or care the first time it was diluted. Even the brain dead begins to notice after the third or fourth time it's diluted. Unless, of course, the name of the drink has been changed to protect the guilty.

LawsofPhysics's picture

yes, and someday somebody might actually do something about it.

LawsofPhysics's picture

As usual, this is the fault of fractional reserve banking/finance.  The loot has already been stolen and, as usual, the central banks will demand another bailout from the taxpayer.

This will continue until the heads of the powerful are taken and put on fucking pikes.

same as it ever was...

Lordflin's picture

Pikes are so retro... Give them the bayonet!

gatorengineer's picture

Devalue the currently by 30 percent over a couple of years and prices rise, who woulda thunk....

Check to you Mr Trump, where is that deflation we ordered?  Dont see it at the grocery....  I watch the ads all the time on my 200 dollar TV.

King Tut's picture
King Tut (not verified) gatorengineer Jan 3, 2017 8:58 AM

Milk- $1.79, eggs- 79 cents, bacon, bread 99cents a loaf, ground beef- $3lb- not really seeing inflation unless going out to eat

Keithg369's picture

Can you send us a list of where you shop. the average cost of eggs is $2.20 - even the govt reports an almost 35% increase in the past year, Bacon $6.11 per pound per bls. Per the bls, ground beef is up about 50% since 2010 (down a few cents since last year). Milk you're off by almost 75%. I didn't bother with the rest of your list, since you start out so inaccurate. 

We're getting inflation across most necessities. Crap like TV's and vid games are getting more sophisticated and less expensive. Sadly I can't eat those nor live in them. Rent, food are going up. 

Are you working for the fed? 

Catalonia's picture

I wonder what would happen if oil went back up to 100$...

codecode's picture

States would reverse all the taxes they just applied jan 1? /s

silverer's picture

Now that's something to think about for sure. It actually needs to go $75.00 to dig a lot of oil operations out of the hole. Even going to $75.00 would have a huge effect.

gatorengineer's picture

They will drive it to a little over $3 at the pump, thats where it seems to even out, this time likely around $65 a barrell.  There margins are going through the roof.  At a 100 last time we didnt even see $4.  now we will see $3 at 65.  It was the every 4 years drop it for the election, Gas in Pennsy is pushing $2.70 before the run up today.  But we have the highest taxes in the country, at $65 it will likely be $3.25

stant's picture

OT, cnbc is now quoting zh articles, the world has turned upside down low brows

pliny the longer's picture

thankfully this is someplace foreign, we should be fine here in 'merka

khaproperty's picture

No good news for ECB-Draghi. He wants to go on with OMT and QE programmes to transform the creditor-risk referring to all that med-bonds from mainly state but bad companies as well distributed all over the world (!) to worthless paper claims of the EU-, mainly German, taxpayer via ECB-system against some centralbanks in the med-countries of EU. Those are mainly private and all can go bankrupt. That´s the reason why Germans (c/o target II, the central point of these transactions) at the end will sit on all bad claims without any chance to get one cent back. Germany will be - and still is - the bad bank of EU.

That transition is not at it´s end. So ECB-Draghi will go on - completely independent from inflation or inflation expectations.

TheVoicesInYourHead's picture

Simply stagflation caused by the importation of a couple million "refugees" within a year.

Economic "growth" via population growth is the biggest ponzi scheme ever created.

Free Man's picture

Indeed, all those bird killing windmills, inefficient solar sources have greatly increased energy costs in Germany and Europe.

Not to mention all the unemployable idiots flooding their borders.