This will be quite the anticipated report to watch in the session ahead. Prior to the US-Iran conflict, German inflation was already the key sticking point for the ECB in preventing the central bank from pursuing further rate cuts. Price pressures in Europe’s largest economy have been stubborn and showed little signs of waning upon the turn of the year.
So when you factor in the Middle East developments in the past month, everything is turning up bad again. German manufacturing had been on the recovery path upon the turn of the year. And that has helped to alleviate some pressures on the economy for a while now.
But with prices set to hit harder there amid surging input cost inflation, that will be a key challenge for the manufacturing sector in the months ahead. That especially if higher energy prices become more entrenched as the Middle East conflict stretches on.
And therein lies the risk for inflation in Germany as well. Core annual inflation was seen at 2.5% in February, with services inflation being the main reason for the stickier reading. The latter was seen at 3.2% last month.
This time around, headline inflation is likely to see a standout jump as higher energy prices strike first. The war may have been only going on for a month, but the impact will be evident when we see the German price figures later.
Of note, headline annual inflation is expected to climb to 2.7% in March – up from 1.9% in February. If met, that will be the highest reading since January 2024. The monthly inflation figure is expected to surge by 1.1%, which will be the highest since September 2022.
I wouldn’t expect surging prices to hit core inflation just yet. It will take time to filter through but the longer the US-Iran conflict lasts, the odds of that happening are much higher.
Here’s the agenda for today:
- 0800 GMT – North Rhine Westphalia
- 0800 GMT – Hesse
- 0800 GMT – Bavaria
- 0800 GMT – Baden Wuerttemberg
- 0800 GMT – Saxony
- 1200 GMT – Germany national preliminary figures
Do note that the releases don’t exactly follow the schedule at times and may be released a little earlier or later.
This article was written by Justin Low at investinglive.com.