Bundesbank: December Decline of German Headline Inflation ‘Likely to Be Temporary’

23 January 2023

By David Barwick – FRANKFURT (Econostream) – Last month’s decline of headline German inflation is unlikely to be the start of a trend, the German Bundesbank said on Monday in its latest monthly report.

Noting that December’s 9.6% was the first single-digit reading since August in the euro area’s largest economy, the German central bank attributed the reduced price pressures to government measures and said that the slowdown ‘is therefore likely to be temporary.’

‘From January 2023, the gas and electricity price brakes will already be taken into account in the official price measurement’, the Bundesbank continued. ‘However, these should have less of a dampening effect on the inflation rate than the December emergency aid.’

Overall, the German economy probably ‘roughly stagnated’ in 4Q, still better than had been expected a month ago, the Bundesbank said.

‘High inflation and uncertainty about the Ukraine war weighed on the economy in the autumn quarter’, it said. ‘But the situation on the energy markets eased noticeably compared to the summer. In addition, further fiscal measures were taken, which partially relieved private households and companies from high energy costs. Furthermore, the supply bottlenecks in industry and construction became less severe.’

Turning to German labour market developments, the Bundesbank said that as of November, there had been no apparent ‘notable negative influence of the sharp increase in the minimum wage since 1 October’.

‘Rather, in view of the more favourable economic situation and prospects than recently expected, more optimism seems to prevail again in the companies’, it said.

Leading indicators suggest that the German job market should experience ‘a slightly positive employment trend in the coming months’, it said.