Bloomberg, Jan 3, 2017
* Consumer prices rose annual 1.7% this month vs 1.3% estimate
* Euro-area inflation report due to be published on Wednesday
The pace of German inflation more than doubled in December, driven by a surge in oil that is set to mask continued weakness in underlying price pressures in the months ahead.
Consumer prices rose 1.7 percent from a year ago, recording the biggest jump on record, the Federal Statistics Office in Wiesbaden said on Tuesday. Economists surveyed by Bloomberg predicted an increase to 1.3 percent. The reading is the strongest since July 2013 and follows a rate of 0.7 percent the previous month. Prices rose 1 percent from November.
The increase takes inflation in the region’s largest economy close to the European Central Bank’s definition of price stability of just under 2 percent, providing ammunition for some officials pushing for a gradual exit from unconventional stimulus. President Mario Draghi has argued that a decision last month to extend bond buying for longer than anticipated but at a slower pace reflected a “firming” euro-area recovery and “still subdued” core price gains.
“The key question will be by how much higher energy prices will feed into other prices,” said Holger Sandte, chief European analyst at Nordea Markets in Copenhagen. With the main driver of the December pickup a base effect from past oil-price declines, “we expect a very gradual increase in core inflation both for Germany and the euro area.”
The euro was little changed after the report and traded at $1.0389 at 2:57 p.m. Frankfurt time.
The cost of Brent crude surged 12.6 percent in December, recording the biggest monthly increase since April. Prices are set to rise further as the Organization of Petroleum Exporting Countries and 11 other nations started to cut output on Jan. 1 in an effort to reduce bloated global inventories.
Prices for heating oil in Germany rose annually for the first time in four years in December. Most states reported increases of more than 20 percent, contributing as much as 0.3 percentage point to inflation rates.
Fuel was also significantly more expensive, with year-over-year price gains exceeding 5 percent in all regional reports published Tuesday. Food prices jumped at least 3 percent in the majority of states.
In France, consumer prices increased 0.8 percent in December from a year earlier, the most since May 2014, according to a separate report. Spanish inflation accelerated to 1.4 percent, the highest rate since mid-2013.
Faster inflation comes after a data showed on Tuesday that German unemployment extended its decline in December amid signs that growth in Europe’s largest economy picked up at the end of last year. Euro-area manufacturing expanded last month at the fastest rate since April 2011, suggesting the currency bloc’s recovery is intact heading into 2017.
Before the German report on consumer prices, economists estimated that euro-area inflation accelerated to 1 percent in December from 0.6 percent the previous month. Eurostat will release those preliminary figures on Wednesday.
“There are signs of an acceleration in headline inflation, above all because of the increase in oil and commodity prices,” ECB Executive Board member Benoit Coeure said in an interview with Boersen-Zeitung published Friday. “However, we are still waiting for signs that core inflation is on the rise and will clearly exceed 1 percent. That said, our assessment of the balance of risks, including for inflation, is shifting.”