German Inflation Loses Some Pace

Germany persistently is one of the low inflation countries in the Euro-Area. Its inflation rate in August fell to 2.3% Yr/Yr as its price index was flat month-to-month. Jean-Claude Trichet is trying to have some patience with the ongoing inflation overshoot ion the Zone without getting a reputation for being soft on inflation in the midst of the debt crisis in Europe.

The German result this month is bitter sweet as a drop in the price index had been expected. But the trends for inflation in Germany are encouraging.

Six-month and three-month inflation each peaked four months ago. With six month inflation below 12-month inflation and with three-month inflation less than six month inflation the progression indicates that inflation is still decelerating.

Core inflation is decelerating as well and it is down below 1% at an annual rate over the last three-months.

Beyond that the trend for inflation across CPI components is reassuring. Three-month inflation is below six month inflation for wide variety of components, only 36% of the categories in the CPI have inflation rising over three-months compared to six months. Six month inflation is below 12-month inflation across a wide spectrum of categories, as well inflation is up on that horizon for only 36% of the categories.

The drops in inflation in Germany are part of a widespread phenomenon. With energy prices generally turning lower there is every reason to believe that Germany’s trends will be more or less shared across the Euro-Area and that the ECB exercise in forbearance will not cause it any discomfort. Slowing growth should add to the temperance in the rate of inflation in the Zone.

German HICP and CPI   Mo/Mo % SAAR % Yr/Yr   Aug-10 Jul-10 Jun-10 3Mo 6Mo 12Mo Yr Ago HICP Total 0.0% 0.3% -0.1% 0.7% 1.6% 2.3% 1.0% CPI All -0.1% 0.3% 0.0% 0.7% 1.6% 2.2% 1.0% CPIxF&E -- 0.1% 0.2% 1.5% 1.9% 1.6% 0.6% Food -- 0.3% -0.1% 4.6% 3.9% 2.7% 2.1% Alcohol -- 0.1% 0.5% 5.8% 3.0% 1.9% 0.4% Clothing & Shoes -- 0.4% -0.7% 3.1% 1.9% 1.9% 1.3% Rent &Util -- 0.4% 0.1% 1.4% 2.9% 3.3% 1.3% Health Care -- -0.1% 0.0% -0.4% 0.4% 0.8% 0.4% Transport -- 0.8% -0.7% -1.0% 2.3% 4.9% 3.4% Communication -- -0.6% 0.0% -2.3% -2.8% -3.1% -1.7% Rec &Culture -- -0.6% 1.6% -1.5% 0.8% 1.1% -0.3% Education -- 0.1% -0.1% 0.0% -1.5% 1.8% -1.2% Restaurant & Hotel -- 0.5% 0.2% 1.8% 2.0% 1.5% 1.1% Other -- 0.0% 0.1% 0.4% 3.3% 2.1% 0.8% Diffusion   36.4% 36.4% 81.8%   Type: Diffusion: Current Compared to 6Mo 12Mo Yr-Ago
Shaded regions are lagged by one month due to missing month current observations