German Inflation Doubled in December

The pace of German inflation more than doubled in December, driven by a surge in oil that is set to mask continued weakness in underlying price pressures in the months ahead.

Consumer prices rose 1.7 percent from a year ago, recording the biggest jump on record, the Federal Statistics Office in Wiesbaden said on Tuesday. Economists surveyed by Bloomberg predicted an increase to 1.3 percent. The reading is the strongest since July 2013 and follows a rate of 0.7 percent the previous month. Prices rose 1 percent from November.

The increase takes inflation in the region’s largest economy close to the European Central Bank’s definition of price stability of just under 2 percent, providing ammunition for some officials pushing for a gradual exit from unconventional stimulus. President Mario Draghi has argued that a decision last month to extend bond buying for longer than anticipated but at a slower pace reflected a “firming” euro-area recovery and “still subdued” core price gains.

“The key question will be by how much higher energy prices will feed into other prices,” said Holger Sandte, chief European analyst at Nordea Markets in Copenhagen. With the main driver of the December pickup a base effect from past oil-price declines, “we expect a very gradual increase in core inflation both for Germany and the euro area.”

The euro was little changed after the report and traded at $1.0389 at 2:57 p.m. Frankfurt time.

via Bloomberg

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza