German consumer price inflation accelerates above expectations in August

Germany recorded consumer price inflation slightly higher at 1.8 percent in August. But this rise is just because of slightly higher energy prices and a higher inflation rate for food. The core rate of inflation has dropped marginally, arguing against a further rise in the euro area. However, the trend in underlying inflation continues to point upwards in Germany at least, and in view of high capacity utilization in the German economy, this should not be a surprise.

The German inflation rate is slowly continuing to rise towards 2 percent. Like in the two preceding months, it rose in August by 0.1 percentage points and came in at 1.8 percent, noted Commerzbank in a research report. This was due to slightly higher energy prices and the fact that the usual seasonal decline in food prices turned out weaker than 2016. After factoring out the components of energy and food, the pace of inflation dropped by nearly one-tenth of a percentage point, though it is likely that the pace has not even changed.

This slightly lower core inflation rate in Germany implies that the corresponding rate for the euro zone has not risen any further in August, stated Commerzbank. The European Central Bank’s target of almost 2 percent thus probably remains far out of reach for some time. But this hardly signifies that the slightly uptrend recently seen in the German core rate is already over.

The mild drop in August was due to prices for package holidays, where the seasonal pattern appears to have shifted a bit in 2017.

“When viewed over several months, the trend points upwards, and this is unlikely to change soon against the backdrop of high capacity utilisation in the German economy that is also reflected in the low unemployment rate”, added Commerzbank.

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