How the Price of East German Butter Moves the Euro

  • Saxony leads the release of Germany's monthly inflation data
  • ECB's focus on prices makes investors itchy for information

Why Investors Care About Saxony CPI

From the cost of fresh butter in Dresden to a shirt in Leipzig or perfume in Chemnitz, each month the 60 data collectors in the German state of Saxony start gathering prices -- and end up moving the euro.

Figures that originate in what was part of communist East Germany and its price controls until 1990 have become a major focus for traders and market analysts trying to divine the overall inflation rate for the country and then the euro region. Saxony is the first in Germany to publish monthly consumer price data at a time when inflation dominates European Central Bank policy making.

“The sooner you get any kind of inkling of data, the better,” said Neil Jones, head of hedge-fund sales at Mizuho Bank Ltd. in London. “Saxony comes out first, it’s in Germany, which is obviously the largest economy in the euro zone, and that will look to be a guide to the potential for further stimulus down the line.”

The reaction to Saxony’s data published on Wednesday confirmed the sensitivity of financial markets to the findings of the state’s statisticians. The euro jumped 0.2 percent against the dollar and Germany’s benchmark 10-year bonds pared their gain immediately after the report showed the inflation rate rebounded in March.

Indeed, in the past year, the euro moved about 0.08 percent on average against the dollar in the five minutes after Saxony released its inflation report each month.

While hardly a seismic shift in sentiment, and coming at the same time the stock market opens in Frankfurt, the reaction was typically more than for consumer-price data for the euro region. The was also more movement than for the latest update on Germany’s business climate by the Ifo Institute, data that used to be more closely watched.

“At the moment the most dominant driver of exchange rates is central-bank policy and there it’s only important to look at numbers that have a potential impact on the sense of central banks,” said Ulrich Leuchtmann, Frankfurt-based head of currency strategy at Commerzbank AG, Germany’s second-largest bank. He said while Ifo used to move the exchange rate significantly with every surprise, “it’s not the case anymore.”


Saxony’s importance is down to timing rather than anything else. It’s the first glimpse of inflation data rather than an economic bellwether for Germany.

The state is the sixth most-populous of 16 in Germany with about 4.1 million people, or roughly 5 percent of the country. The data collectors report their findings to six number-crunchers who work with the Bundesbank.

“I don’t think Saxony is a good indicator for German inflation as a whole,” said Stefan Kipar, an economist at Bayerische Landesbank in Munich, adding that larger states influence the national rate more. Still, when it comes to Saxony, “usually the first information is the one that triggers the most reaction in markets,” he said.

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