German HICP inflation to remain in negative territory in coming months, sharp recovery seen in H2

In March, Germany’s final HICP inflation is likely to confirm the flash estimate of 0.1% y/y, according to Societe Generale. This is higher than the -0.2% y/y reading of February. Higher prices paid for services, are expected to be the mainly driving the acceleration in Germany’s inflation, noted Societe Generale. However, downward pressure is continued to be exerted on headline inflation by energy prices. Headline inflation decelerated further on an annual basis to -8.9% from -8.5%.

But, energy prices rose 1% on a monthly basis, while food inflation accelerated to 1.3% y/y from 0.8% y/y. According to the Destatis press release, the core CPI appears to have accelerated markedly to 1.3% y/y from 0.9% y/y. In contrast to that, non-energy industrial goods inflation appears to have weakened slightly to 0.9% y/y from 1% y/y.

“Looking ahead, we expect German HICP inflation to remain in negative territory in the coming few months before recovering sharply in H2 16 to average 0.5% in 2016, followed by 1.8% in 2017, while the core metric should average 1.2% in 2016 and 1.4% in 2017”, added Societe Generale.