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German inflation puts ECB policy back in spotlight
Economics

German inflation puts ECB policy back in spotlight

2 min. 30.01.2017 From our online archive
A second month of high inflation in Germany in January will likely prompt a fresh round of complaints against the European Central Bank's loose monetary policy, analysts predicted.

(AFP) A second month of high inflation in Germany in January will likely prompt a fresh round of complaints against the European Central Bank's loose monetary policy, analysts predicted.

Consumer prices in Europe's largest economy rose by 1.9 percent year-on-year, federal statistics office Destatis said in preliminary data released Monday, up from a rate of 1.7 percent recorded in December.

The last time inflation was that high in Germany was in July 2013, the statisticians observed.

Analysts surveyed by Factset had been pencilling in an inflation rate of 2.0 percent for December.

"German ECB-bashing is very likely to gain further momentum" in the wake of the latest figures, analyst Carsten Brzeski at ING Diba bank said.

The ECB has set interest rates at historic lows as well as buying up tens of billions of euros in government and corporate bonds to try and drive growth and boost inflation towards its target of just below 2.0 percent.

With inflation now around those levels in Germany, calls from leading economists, politicians and newspapers are growing louder for the ECB to raise interest rates.

Cash piles dwindle

Low interest rates plus rising inflation mean German savers are seeing an increasing share of their cash piles eaten away in real terms.

But the eurozone's economic powerhouse has recently outpaced its neighbours in the 19-nation single currency area, with the 1.7 percent inflation it recorded in December standing against an average of 1.1.

"Price pressures are weaker elsewhere in the eurozone and there is still little chance of the ECB hitting its target for the region as a whole," Jennifer McKeown of Capital Economics commented.

For the time being, ECB president Mario Draghi counts on keeping interest rates low to maintain their stimulus effect on weaker economies.

"Low rates now are necessary to get higher rates in the future," he repeated at a press conference in early January when challenged on interest rates.

"As the recovery will firm up, real rates will go up as well. This will happen for Germany and for other countries."

Draghi has pointed to rising oil and other energy prices as the main reason headline inflation has increased, while core inflation in the 19-nation single currency area remains weak.

'Crying wolf'

German energy prices rose 5.8 percent in January, Destatis calculated -- more than double the rate in December -- while food prices rose by 3.2 percent.

That far outpaced prices for services, which grew just 1.2 percent.

"There is very little the ECB can do about an increase in inflation almost exclusively driven by energy and food prices," ING's Brzeski commented.

Instead, Draghi is likely resolved to take the heat from Germany for several months until early 2016's low oil prices in drop out of year-on-year comparisons, bringing headline inflation back down, he predicted.

"The latest inflation excitement in the media and by some policymakers has been crying wolf," agreed UniCredit economist Andreas Rees. "There are no signs of a persistent upward trend in consumer prices."

Inflation could inch yet higher in Germany over the coming months before falling back again towards the end of the year, the analysts agreed.

Destatis will release definitive inflation data for January on February 14.