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February 22, 2017
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The headline inflation rates, which have increased substantially in recent months, have rekindled the debate surrounding the ECB's bond-buying programme. German producer prices have also risen sharply in recent times. In December 2016, the prices of metal (up by 5% on December 2015) and energy (up by 10%) increased particularly sharply. Nevertheless, the remaining inputs (weighting: 83.6%) continued to show no inflationary pressure at all. [more]
PROD0000000000448375 1   |    February 22, 2017Chart in Focus February 22, 2017 ECB unimpressed by the rise in inflation - for now Author www.dbresearch.com Deutsche Bank Research Management Stefan Schneider Jochen Moebert +49(69)910-31727 jochen.moebert@db.com The headline inflation rates, which have increased substantially in recent months, have rekindled the debate surrounding the ECB's bond-buying programme. German producer prices have also risen sharply in recent times. In December 2016, the prices of metal (up by 5% on December 2015) and energy (up by 10%) increased particularly sharply. Nevertheless, the remaining inputs (weighting: 83.6%) continued to show no inflationary pressure at all. For the ECB, however, the increase in eurozone consumer price inflation to 1.8% in January and the rise of more than 2% percentage points in consumer prices since summer 2016 are the more relevant metrics. They meant that the ECB's average annual inflation target of "below, but close to, 2%" was within reach again – after three years of inflation rates that had hovered just above zero. But despite the high level of media attention – particularly in Germany – the ECB is unlikely to consider prematurely winding down its bond-buying programme. The core inflation rate – i.e. the change in the price of consumer goods excluding volatile items such as food and energy – remains virtually unchanged at around 1% both in Germany and across the eurozone. For the core inflation rate to increase, high wage growth is needed. As in recent years, wage growth is likely to be around 2% in Germany – despite full employment. Despite the recent increase in overall inflation, it therefore seems unlikely that the ECB Governing Council, at its March meeting, will be willing to signal a tapering of its bond purchases. In the best-case scenario, it will formulate more specific conditions under which the bond-buying programme could be reduced. As before, we expect the ECB to announce a scaling back or modification of its bond purchases in June at the earliest. However, it is probable that the ECB's comments in March will hint at a slight shift in emphasis. Deutsche Bank Research ECB unimpressed by the rise in inflation - for now 2   |    February 22, 2017Chart in Focus © Copyright 2017. Deutsche Bank AG, Deutsche Bank Research, 60262 Frankfurt am Main, Germany. All rights reserved. When quoting please cite “Deutsche Bank Research”. The above information does not constitute the provision of investment, legal or tax advice. Any views expressed reflect the current views of the author, which do not necessarily correspond to the opinions of Deutsche Bank AG or its affiliates. Opinions expressed may change without notice. Opinions expressed may differ from views set out in other documents, including research, published by Deutsche Bank. The above information is provided for informational purposes only and without any obligation, whether contractual or otherwise. No warranty or representation is made as to the correctness, completeness and accuracy of the information given or the assessments made. In Germany this information is approved and/or communicated by Deutsche Bank AG Frankfurt, licensed to carry on banking business and to provide financial services under the supervision of the European Central Bank (ECB) and the German Federal Financial Supervisory Authority (BaFin). In the United Kingdom this information is approved and/or communicated by Deutsche Bank AG, London Branch, a member of the London Stock Exchange, authorized by UK’s Prudential Regulation Authority (PRA) and subject to limited regulation by the UK’s Financial Conduct Authority (FCA) (under number 150018) and by the PRA. This information is distributed in Hong Kong by Deutsche Bank AG, Hong Kong Branch, in Korea by Deutsche Securities Korea Co. and in Singapore by Deutsche Bank AG, Singapore Branch. In Japan this information is approved and/or distributed by Deutsche Securities Inc. In Australia, retail clients should obtain a copy of a Product Disclosure Statement (PDS) relating to any financial product referred to in this report and consider the PDS before making any decision about whether to acquire the product.