Signals of inflationary pressures in Germany are on the decline
The German import price data earlier here is one the ECB could really do without. Along with PPI figures, any form of inflation-related data from Germany has been on the decline in recent months.
It is no wonder why the Bundesbank is rushing the ECB to act before it all disappears.
The import price index data earlier was actually worse than what the headline suggests in my view. Stripping out energy and fuel (excluding crude and petroleum), the year-on-year reading is -1.1%. Ouch.
Although they are unadjusted for seasonal factors, you can't ignore the trend that is developing in terms of producer prices either - which mimics that of the import price index. They are proxy to inflation data but as you can see the readings are very much correlated.
And the recent downtrend is likely to suggest that inflation is starting to slowdown in Germany - and that doesn't bode well for the ECB as they look to normalise monetary policy some time in mid-2019.
There is still some time to go until then, but surely not a welcome sign for the ECB as it seeks to communicate the terms of hiking rates with the market later in the year. Can the ECB do so when inflation stagnates or continues to soften?
We'll have to find out.
