Preview of the German CPI and HICP data due 13.00 gmt 29 January 2015

March 2015 is the date that the ECB starts to save the Eurozone once again so it doesn’t really matter what the inflation numbers say from here on out does it?

The Germans love to sweat on inflation and they’ll no doubt be loving the large drops coming out of the regions so far. At the moment they are pointing to the main number missing expectations by a country mile. The market is expecting a drop to -0.2% from +0.1% y/y in HICP and -0.1% from +0.2% y/y in the German CPI. I’m not sure if we get any core numbers from Ze Germans but we can assume it will all be blamed on oil.

Now the (when) QE elephant has been removed from the room it’s hard to see the euro reacting to any inflation shocks in the headline numbers. After all, we have the solution primed and ready to go. The core number is still worth watching as that will be the number that signals real deflation.

Will QE do the job is re-igniting the economy and turning around inflation? I very much doubt it will on its own. I remarked yesterday that Draghi and the ECB might have picked March for a very good reason. We know that swings in oil prices take a long while to filter right through into the economy so if we take that the main oil moved started in October that would be 6 months to March and probably a reasonable time to start seeing some real effects.

Due to austerity Draghi couldn't afford to rent Bernanke's QE-copter

Due to austerity Draghi couldn’t afford to rent Bernanke’s QE-copter

Have the ECB planned this so that they can mask any ineffectiveness of QE behind the positive boost from the oil price? The economy had been screaming for action last year so why the need to wait another 2 months? Why didn’t they pull the trigger last week? It could be a rather shrewd move by the ECB to buy themselves some protection against QE not working but it is still a gamble that falling imported prices does give a decent injection into the economy.

The other reason for the March date could also be because it gives the ECB time to see how the Germans react and what possible legal challenge they make. So far we’ve only had one and there’s been only half hearted comments from Weidmann against it. That suggests that the Germans are going to run with it without a serious objection, in the main.

So inflation numbers don’t matter anymore as the ECB is riding to the rescue in March. Personally I’d leave the celebration champers in the fridge for a while longer though

;-)