Germany’s final HICP inflation for February likely decelerated significantly

Germany's final HICP inflation for February is likely to confirm the flash reading of -0.2% y/y, considerably weaker than January's reading of 0.4% y/y. The national CPI of the country is also likely to confirm the flash reading of 0.0% y/y, as compared with January's 0.5% y/y. According to the flash release, prices of all major components such as food, energy, services and core goods dropped in the month on an annual basis. The biggest drag to the headline ca me from energy prices that fell to -8.5% y/y from -5.8% y/y, subtracting 30bp from the figure. Meanwhile, food prices weakened to 0.8% y/y from 0.9% y/y, subtracting 1bp.

According to the Destastis press release, the core CPI inflation is also expected to have decelerated to 1% y/y from 1.3% y/y, mainly due to drop in prices paid for services from 1.2% y/y to 0.9% y/y, subtracting 15bp and weaker non-energy industrial goods prices that appear to have dropped to 1% y/y from 1.4%, subtracting 10bp. The final HICP figure for February is expected to indicate that most of the slowdown in core services prices was because of transportation prices.

"Looking ahead, we expect German HICP inflation to average 0.7% in 2016 and 1.7% in 2017, while the core metric should average 1.3% in 2016 and 1.4% in 2017", says Societe Generale.