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Germany CPI Preview: CPI seen falling sharply in January

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Jan 28, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

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    FXStreet (Mumbai) - German Consumer Price Index (CPI) will be released today at 13.00 GMT. CPI is expected to have dropped sharply in January. Month on month, CPI is expected to fall 0.8 per cent as compared to 0.1 per cent drop seen previously. Year on year, CPI is expected to rise 0.5 per cent, higher than the 0.3 per cent increase recorded earlier.

    Harmonised Index for Consumer Prices is expected to fall 1 per cent month on month in January after having stagnated in December. Year on year comparison shows Harmonised Index for Consumer Prices will likely increase to 0.5 per cent, up from 0.2 per cent seen previously.

    The German CPI shows the change in prices of a standard package of goods and services which German households buy. To measure inflation, an assessment is made of how much the CPI has risen in percentage terms over a given period compared to the CPI reading seen previously. A drop in prices below zero raises fears of deflation. The Federal Statistical Office also calculates a Harmonised Index of Consumer Prices (HICP) for Germany with the objective to measure inflation in the context of international, mostly inner-European comparisons. The calculation of HICP inflation relies on harmonised concepts, methods and procedures. It highlights the development of prices in the individual states based on national consumption patterns. The difference between the German CPI and the German HICP lies primarily in the inclusion of owner-occupied residential property in the German CPI . Also, in contrast to the CPI for Germany the HICP for Germany does not include games of chance.

    Markets closely watch all German economic indicators as Germany is the largest economy in the euro zone. The indicators that highlight the performance of the German economy also help markets gauge the health of the overall health of the euro zone. It also helps to a large extent to help the ECB understand whether or not its monetary policies are working. The European Central Bank (ECB) kept its monetary policy unchanged on 21st January. Rates were held steady at 0.05 per cent and at the post meeting press conference ECB supremo Mario Draghi stated that rates can be expected to "stay at present or lower levels for an extended period of time".

    Draghi also held that there that downside risks were increasing again. He signalled the need for more stimulus measures. The plunge in the oil price to below $30 per barrel means that CPI inflation could average as little as 0.2 percent this year – well below the ECB's current forecast of 1 per cent”, he added at the post meeting press conference. He had warned that inflation will likely negative and only pick up towards the end of the year. If the German CPI data comes in as expected it will once again underline the dismal price environment and will go a long way to confirm what the ECB Chief said about reviewing the monetary policy. Draghi had noted "It will therefore be necessary to review and possibly reconsider our monetary policy stance at our next meeting in March".
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