Bundesbank: Headline and Core to Continue Declining, But Headline to Remain Well Above 2%

18 September 2023

By David Barwick – FRANKFURT (Econostream) – German headline and core inflation should continue to decelerate in the next months, but will remain supported by strong wage growth, the German Bundesbank said on Monday in its latest monthly report.

‘In the coming months, both the overall HICP rate and the core rate in Germany are expected to fall further’, the Bundesbank said, observing that previously upside base effects will fall out as of the current month.

‘In addition, the significant price declines at the upstream stages will probably be successively passed on to consumers’, the Bundesbank said. ‘Nevertheless, against the backdrop of robust wage growth, the inflation rate should remain well above 2% in the medium term.’

The current quarter would see economic growth decline a bit, the German central bank predicted, with private consumption offering little if any support.

‘Despite the somewhat weakening price increase, strong wage growth and the good labour market situation, private households are still holding back on spending’, the Bundesbank said.

Employment levels were likely not to change much in the coming months, according to the Bundesbank. As for unemployment, still ‘very stable at a comparatively low level given the current strains’, a key forward-looking indicator suggested ‘a further slow rise in unemployment in the autumn’, it said.