In assessing the latest inflation figures for Germany, lRabobank analysts They noted that German HICP inflation slowed from 11.3% yoy to 9.6%, the lowest reading since August.
No wonder the ECB hawks haven’t quieted down
“This is lower than expected as markets were anticipating a drop as low as 10.2%. However, despite this pullback to single digits, the reading is affected by some unusual factors. Most importantly is that the German government last month granted a one-time compensation for energy bills.Meanwhile, utility prices, for example, have accelerated again to 3.9%, in a sign that any pullback towards the target of the 2% from the ECB can be a long process.”
“Market expectations for the next ECB rate hikes have eased slightly since the data release, with a cumulative forecast for 120 basis points hikes through May, down from 126 basis points before the turn of the year.”
“That said, to the ECB’s concerns that it could be a long time before inflation returns to the central banks’ target, one must add that labor markets remain tight in a number of countries. In particular, German unemployment fell unexpectedly in December According to the Federal Labor Agency there were 13,000 fewer unemployed after adjusting for seasonal factors and the influx of Ukrainian refugees With employment at a new high (latest data is for November), staff shortages continue to hit support the bargaining power of employees, who are trying to recover part of the real income lost due to high inflation.”
“Given the upside risks, it’s no surprise that the ECB hawks have not been deterred by these recent inflation data.” Kazaks repeated that he sees “significant” rate hikes at the February and March meetings, after which “of course, the steps can be smaller as needed, as we find the right level to bring inflation down to 2%.” .
Source: Fx Street
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