Germany: Ammunition for the ECB hawks – ING

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Feb 2, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    FXStreet (Delhi) – Carsten Brzeski, Chief Economist at ING, suggests that the latest inflation data shows that there is little risk of outright deflation in Germany, providing more ammunition for the hawks at the ECB.

    Key Quotes

    “Based on the results of several regional states, German headline inflation increased in January to 0.5% YoY, from 0.3% in December, on the back of higher food prices.

    Looking ahead, it should take at least until the second half of the year before German headline inflation could at least cross the 1%-threshold again.

    All of this means that German consumers are currently enjoying the best of both worlds: a strong labour market with decent wage increases and low inflation. This is the perfect combination for an improvement of German consumers’ purchasing power and hence private consumption. For the ECB, however, the challenge has not become any easier. In fact, German inflation data are welcome arguments for the opponents of additional ECB action.

    In our view, Draghi’s comments at last week’s press conference have pushed the ECB into a delicate dilemma. With again fuelled high market expectations, doing nothing is almost entirely out of the question for the ECB. At the same time, the fact that the Governing Council does not seem to have a unanimous view on the need for and effect of additional easing plus the small detail that Bundesbank President Weidmann won’t hold a voting right at the March meeting have clearly increased the risk for disappointment in March.”
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