German annual inflation probably more than doubled in December, hitting what would be the highest level in more than three years and providing a welcome boost to the European Central Bank, regional data suggested on Tuesday. Conversely, it may put a damper on Germans' appetite for spending.
Nonharmonised inflation data from five federal states shows that prices increased by at least 1.7 per cent year-on-year at the end of 2016. This is close to the European Central Bank’s inflation target of near 2 per cent. The number for Germany as a whole is due later on Tuesday.
The ECB has poured money into the euro zone economy in an attempt to boost inflation from its near-deflationary level, so Tuesday’s strong data is likely to intensify calls from fiscal conservatives on the bank to start reversing policy.
DZ Bank economist Michael Holstein said the state data suggests that German EU-harmonised consumer prices overall rose by 1.5 per cent on the year. This would be the highest annual inflation rate since November 2013. It would also be higher than a Reuters consensus forecast for a rise to 1.3 per cent after 0.7 per cent in November.
Euro zone rise
Consumer prices in the 19-country euro zone rose 0.6 per cent in November. For December, economists expect the euro zone figure, due on Wednesday, to rise to 1.0 per cent on the year.
Rising prices may be good news from the ECB from a pan-euro zone perspective. But they do not necessarily bode well for the German economy, which has been relying on private consumption, a booming construction sector and government spending for growth.
Private consumption and construction have been boosted by the ECB’s low-interest rates and record-high employment. Rising price pressures would make traditionally frugal Germans more reluctant to take their wallets out.
German government bond yields nudged up from two-month lows as investors anticipated that the data would show sharply rising consumer prices.
– Reuters
