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Economy in Brief

German Inflation Behaves a Bit…
by Robert Brusca September 26, 2008

The chart on the left shows German inflation has been soaring and chopping around, then, recently it moved into a still-choppy but lower range. Headline inflation is and has been decelerating. But core inflation (only available thru August) is still accelerating. Of course oil prices broke lower in this period but have since moved higher, implying the headline rate’s improvement is still a bit suspect. Core inflation over 3 months and 6 months shows some tendency to accelerate but for both the German CPI definition as well as the HICP definition through August year/year core inflation is below the 2% ceiling that applies to the overall EMU HICP. That much is good news. But Germany is also one of the EMU’s best inflation-controlled economies and it barely skates under this barrier for core inflation so we can expect that the news and trends for all of EMU are worse.

Energy prices continue to muck-up the inflation picture. Past energy increases still elevate the 12-month headline rate to a pace that makes the ECB somewhere between uncomfortable and embarrassed. Money growth and credit growth in EMU continue to be strong. Yet the growing US financial crisis and spreading economic weakness put the ECB on the spot when it comes to policy decisions. We suspect inflation is still the ECB’s dominant concern and wonder if it will be able to shift its focus fast enough to cushion the blow on growth that the overly strong euro and weakening global economies have in store for Europe.

German HICP and CPI
  Mo/Mo % Saar % Yr/Yr
  Sep-07 Aug-07 Jul-07 3-Mo 6-Mo 12-Mo Yr Ago
HICP Total 0.2% -0.2% 0.4% 1.5% 2.1% 3.0% 2.6%
Core #N/A 0.3% 0.3% 2.7% 1.7% 1.9% 2.3%
CPI  
All 0.2% -0.2% 0.3% 1.1% 2.3% 2.9% 2.7%
CPI ex Food & Energy #N/A 0.2% 0.2% 2.3% 1.5% 1.8% 2.3%
Food #N/A 0.4% 0.9% 5.5% 4.6% 7.0% 3.2%
Alcohol #N/A 0.3% -0.5% -1.8% 0.5% 4.1% 2.7%
Clothing & Shoes #N/A 1.4% -1.1% 1.2% -1.4% 1.4% 1.7%
Rent & Utilities #N/A -0.2% 0.4% 2.6% 4.0% 3.9% 1.6%
Health Care #N/A 0.1% 0.2% 3.2% 2.4% 1.8% 1.2%
Transport #N/A -1.3% 0.2% -1.1% 2.9% 4.7% 2.3%
Communication #N/A -0.4% 0.1% -3.9% -3.6% -3.6% -1.0%
Recreation & Culture #N/A -0.1% 0.9% 3.3% 1.4% 0.4% 0.5%
Education #N/A -1.1% 1.0% -1.7% -6.2% 3.4% 31.4%
Restaurant & Hotel #N/A 0.5% 0.3% 3.4% 2.7% 2.3% 3.0%
Other #N/A 0.0% 0.1% 1.1% 1.5% 1.8% 2.9%
Diffusion       45.5% 36.4% 36.4%  
Type: Diffusion: Current Compared to 6-mo 12-mo Yr-Ago --
Shaded regions are lagged by one month due to missing month current observations
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