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Fall In German Inflation

James Boston
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Fall In German Inflation

As the Eurozones largest and currently strongest performing economy, Germany’s continued success is vital to the overall recovery manifesting in the single currency bloc. The preliminary June inflation data published this morning will therefore be closely watched as a surrogate for Eurozone price growth and any potential European Central Bank (ECB) response.

The headline year on year Consumer Price Index (CPI) has been released as 0.8%, this compares to the final May reading of 1.0%, market consensus expectations on this key number was exactly 0.8%. Month on month the CPI’s latest reading is 0.3%, by comparison May’s number was also 0.3% and the consensus estimate was for a 0.2% reading.

The Harmonized Index of Consumer Prices (HICP), the ECB’s preferred inflationary measure, is now showing a year on year reading of 0.8% in Germany, this is in comparison to the May showing of 1.0% and the anticipated reading was also for 0.8%. The month on month HICP has been announced as 0.3%, the May number was 0.4% and the expected number today was correct at 0.3%.

The geopolitical situation in the Ukraine is already weighing on the German economy, even before the announcement of today’s added economic sanctions. German exports to Russia have fallen almost 17% during the past three month’s as tensions rose in the eastern Ukrainian regions, this drop in trade was recorded well in advance of the recent downing of flight MH17 and as a consequence is likely to fall significantly further.
Business confidence in Germany has fallen to a 9 month low as evidenced by last week’s Ifo reading. This is partially due to the sluggishness that is still present in the Eurozone recovery and the consequent reduction in German export targets. It is also reflecting the fact that German industries know that these sanctions will hurt not only Russia but Germany aswell.

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