German Inflation Decelerates in Dip Predicted by ECB

  • Consumer prices rose 1.5% in March; economist forecast 1.9%
  • Spanish inflation also weakened more than expected in March

Inflation in Europe’s largest economy decelerated more than forecast in March.

Consumer-price growth in Germany slowed to 1.5 percent from 2.2 percent the previous month, the Federal Statistical Office said on Thursday, marking the first weakening since August 2016. Economists had forecast inflation of 1.9 percent.

The decline partly reflects the timing of the Easter holiday, which was in March in 2016, and may be a precursor to softer euro-area numbers, which are due on Friday. Consumer-price growth in Spain also weakened more than expected in March, according to data published Thursday, with a slowdown to 2.1 percent from 3 percent last month.

“Information in the regional releases suggests that energy inflation dipped back as expected given the fall in oil prices,” Jennifer McKeown, chief European economist at Capital Economics wrote in a note after data for several German states was published. “Meanwhile, February’s weather-related surge in seasonal food prices reversed more sharply than we had assumed.”
A drop in the overall euro area rate -- forecast to come in at a lower pace of 1.8 percent -- probably won’t surprise the European Central Bank, which predicted it would peak in the first quarter. Even so, that’s a reminder that price trends are being largely driven by volatile components such as energy and food.

The euro fell 0.3 percent to $1.0735 at 2:32 p.m. in Frankfurt, after declining 0.9 percent over the previous two days.

While a pickup in inflation in the past year has kickstarted a discussion about the central bank’s monetary policy stance, President Mario Draghi has said he’s waiting for assurances that the improvement is broad based and sustainable. ECB Chief Economist Peter Praet said this week that it’s too soon to start discussing when to withdraw stimulus.

— With assistance by Ainhoa Goyeneche, Kristian Siedenburg, Fergal O'Brien, and Alice Baghdjian

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