German Inflation Ticks Up but Not Sufficiently to Spook Investors

It was a relatively busy day start to the European session, with inflation in the spotlight. This morning, prelim German inflation figures for January drew interest.

In January, Germany’s annual inflation rate accelerated from 8.6% to 8.7% versus a forecasted 8.9%.

According to Destatis,

• The Federal Statistical Office (Destatis) expects consumer prices to increase by 1.0 in January.
• In January, the Harmonised Index of Consumer Prices (HICP) increased by 9.2% year-over-year versus 9.6% in December.
• The HICP increased by 0.5% in January versus a 1.2% slide in December.

Ahead of the latest round of inflation numbers, ECB members and President Lagarde continued to view inflation as too high, supporting the hawkish policy outlook for the coming months.

The inflation numbers reaffirmed the recent comments from ECB member Isabel Schnabel who spoke this week, saying that tighter monetary policy had little impact so far, suggesting that more is needed to tackle inflation.

While the pickup in inflationary pressure supports the ECB hawks, the annual rate may need to edge toward the October peak of 10.4% to force the ECB to rethink its policy goals.

EUR/USD Price Response to German Inflation

Ahead of the inflation numbers, the EUR/USD fell to an early low of $1.07094 before rising to a pre-stat high of $1.07449.

However, in response to the German inflation numbers, the EUR/USD rose to a high of $1.07403 before sliding to a low of $1.07243.

At the time of writing, the EUR/USD was up 0.17% to $1.07327.

Up Next

With inflation the hot topic of the day, investors need to consider ECB member speeches. ECB member Luis de Guindos will speak later today. The talk of lifting rates more aggressively would move the dial. Also, investors are waiting on the EU Economic Growth Forecasts.

However, it is a quieter day on the US economic calendar. US jobless claims will be in the spotlight early in the US session. Following the hotter-than-expected US Jobs Report and Wednesday’s hawkish Fed chatter, a further decline in initial jobless claims would question Fed Chair Powell’s market-friendly monetary policy stance.

FOMC members Williams and Waller delivered hawkish speeches on Wednesday, with John Williams seeing interest rates peak at between 5% and 5.25%. On Tuesday, Fed Chair Powell hoped that rates would remain below 5%.