Inflation in Germany rose less than expected in December, and a core reading moved lower, bolstering hopes that the European Central Bank can reduce interest rates this year.
Annual headline inflation, harmonized to dove-tail with other European Union nations, last month rose to 3.8% from November’s 2.3%, Germany’s federal statistics office said on Thursday.
However, the jump reflected base effects stemming from last December’s energy relief measures for gas and district heating, the statistics office said, and the reading was lower than the 3.9% level forecast in a Bloomberg survey of economists.
Indeed, annual core inflation, which strips out volatile energy and food prices, fell to 3.5% to from 3.8% in November. That deceleration, alongside a French prices report released earlier on Thursday, bodes well for euro-zone inflation data due Friday, said analysts.
“Based on the national data published so far, the euro-zone headline and core inflation rates are likely to come in close to our forecasts of 2.9% for headline and 3.3% for core inflation,” said Andrew Kenningham, chief European economist at Capital Economics.
That should encourage the market to maintain its forecasts for the ECB to start trimming borrowing costs by the spring.
“This does not change our view that the ECB is most likely to begin cutting interest rates in or around April and that the deposit rate will fall by around 125 basis points to 2.75% by the end of the year,” said Kenningham
The euro
EURUSD,
was little changed following the release of the data, gaining 0.2% on the day to $1.0943. German 10-year bond yields
BX:TMBMKDE-10Y,
the euro-zone benchmark, had already been rising in sympathy with U.S. treasury yields, and traded up 9.6 basis points to 2.121%.
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