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Economy in Brief

Excluding Energy, Trends are Turning in Germany
by Robert Brusca January 25, 2008

German import prices surged by 0.5%. But strip out energy and the rise is reduced to 0.1%; export prices excluding energy are flat, too. Year-over-year import prices excluding energy are up by 0.1%; export prices on that basis are up by 1.0%. The CPI ex energy is close to the ECB 2% ceiling at 2.1% and the PPI ex-energy is up by 2.2%, both over 12 months. Despite some spiking inflation early in the year and in mid-2006 even for ex energy prices inflation has settled down in the Germany ex-energy economy.

Still, the ECB is not an Ex-energy or Core inflation targeting central bank. The ECB speaks in terms of headline inflation and in Germany that is still hot; in the Euro area it is hotter still. The ECB is also wary of what has been excessive growth in money and in credit. But the ex energy price indices are a strong indication that true inflation is not brewing in the monetary union. Energy prices have been boosted strongly but those effects have not spread. What the ECB and the Bundesbank are now worried about is contagion via wage deals that are being negotiated and where workers seem to be thinking in terms of headline inflation, which is the rate that most affects them. So wage restraint is the ECB’s main reason to keep policy tight, and to keep warm the rhetoric about needing to cool inflation.

German International and Domestic Inflation Trends
  % m/m % Saar
SA Dec-07 Nov-07 Oct-07 3-Mo 6-Mo 12-Mo Yr-Ago
Export Prices 0.1% 0.2% 0.1% 1.5% 0.6% 1.3% 2.4%
Import Prices 0.5% 1.1% 1.0% 10.8% 3.9% 3.8% 2.2%
Exports excl Petrol 0.0% -0.1% 0.0% -0.4% 0.0% 1.0% 2.5%
Imports excl Petrol 0.1% -0.4% 0.4% 0.4% -1.2% 0.1% 2.7%
Memo: SA              
CPI -0.3% 0.6% 0.3% 2.5% 2.5% 2.7% 1.4%
CPI excl energy 0.1% 0.2% 0.3% 2.2% 2.4% 2.1% 1.2%
PPI 0.0% 0.9% 0.3% 5.1% 2.9% 2.5% 4.3%
PPI excl energy 0.1% 0.1% 0.2% 1.4% 1.6% 2.2% 2.9%
Oil on Import Prices 0.4% 1.5% 0.6% 10.4% 5.1% 3.7% -0.5%
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