Eyes on German CPI, tracking fluctuations - Nomura
Analysts at Nomura explained that the preliminary December reading of the German CPI rose 0.7% m-o-m and 1.7% y-oy, in line with our expectations but exceeding consensus expectations (Consensus: 0.6% m-o-m and 1.4% y-o-y).
Key Quotes:
"German annual HICP inflation surprised on the upside, increasing 1.0% m-o-m and 1.7% y-o-y, stronger than our above-consensus expectations of 0.8% m-o-m and 1.5% y-o-y (Consensus: 0.6% m-o-m and 1.3% y-o-y).
The upside surprise relative to our expectations can largely be attributed to three components – energy, food and package holidays. The positive contribution of the energy price base effect to the annual headline inflation increase accounted for around 0.3pp. In addition, a stronger-than-expected monthly increase in energy prices contributed another 0.2pp to the headline German HICP.
Another solid monthly increase in food and beverage prices also contributed around 14bp to the headline HICP increase in December. Finally, the expected payback from the volatile package holiday component, following an unseasonably weak print in November, turned out to be stronger than we anticipated, worth around +23bp on the headline. Overall, we estimate that German core inflation increased 1.4% y-o-y in December after ticking down to 1.0% y-o-y in November.
Our aggregation of the German state CPI indicates that energy prices rose in December after a monthly decline in November. Elsewhere, clothing and footwear prices declined 2.3% m-o-m pushing the annual growth rate to -0.7% y-o-y.
Overall, an upside surprise in the December German and Spanish HICP (1.4% y-o-y vs our expectations of 1.0% y-o-y) was partially offset by a weaker-than-expected French print (0.8% y-o-y vs our expectations of 0.9% y-o-y).
As a result, we are now tracking 1.1% y-o-y (1.08%) for December euro area HICP. We also expect euro area core inflation to tick up to 0.9% y-o-y in December after 0.8% y-o-y in November. However, on an unrounded basis we are tracking 0.85% for core inflation, indicating downside risks to our forecast."