German and Spanish inflation smashes expectations

Chris Scicluna
Emily Nicol

German and Spanish inflation smashes expectations amid higher energy, food and core pressures
Today’s most notable – and most striking – data are the first national estimates of March inflation from certain euro area member states, which are already smashing (already very high) expectations as the shock to energy, food and other prices from the war in Ukraine compounded the significant pressures already in pipeline. Based on the results from the first few German states to publish figures, the national headline CPI figure (due lunchtime) look set to rise about 2ppts on the month to more than 7%Y/Y, which will represent the biggest monthly increase on record. Germany’s largest state North Rhine Westphalia – which accounts for more than one fifth of national GDP – saw prices rise by the most on the month (2.7%M/M) since the series began in 1995 as energy prices rose a whopping 17.3%, while clothing prices were up 3.8%M/M, pushing the headline inflation rate up 2.3ppts to 7.6%Y/Y. Similarly, inflation in Lower Saxony (about 9% of GDP) jumped 2.1ppts to 6.9%Y/Y, while inflation in the smaller Rhineland-Palatinate rose 1.8ppts to 6.6%Y/Y.

Similarly, this morning’s Spanish numbers also leapt well above expectations, with consumer prices up a record 3.9%M/M in March to leave the headline CPI rate up a whopping 2.2ppts to 9.8%Y/Y, the highest since May 1985. Spain’s statistical office noted that there was a generalised increase in most components, but noted (unsurprisingly) sizeable increases in electricity, fuels and oil and food prices. Core inflation on the national measure was estimated to have increased by 0.4ppt to 3.4%Y/Y, the highest since 2008. Against this backdrop the Spanish government last night agreed another support package (worth €16bn) to address the burden of higher prices, including a €0.20 cut in fuel duty for three months from 1 April, efforts to reduce electricity charges, tax breaks and loans to SMEs.

This morning will also bring the European Commission’s comprehensive business and consumer surveys, which will align with the national sentiment indicators released over the past week or so – including the ifo, INSEE and ISTAT surveys – to suggest a notable deterioration in the euro area’s economic outlook, with the headline economic sentiment indicator forecast to fall 5pts in March to 109.0, which would be the lowest level for a year.

Japan’s retail sales drop for the third consecutive month despite higher prices
Today’s Japanese retail sales numbers came in softer than expected, falling for the third consecutive month in February, by 0.8%M/M to the lowest since August and back below the pre-pandemic level. This left sales in the first two months of the year trending 1.2% lower than the Q4 average. This weakness reflected another notable decline in clothing sales last month (-5.8%M/M), with sales of household appliances also down (-1.2%M/M) for the third month out of the past four. In contrast, there was a pickup in sales of autos for the third month out of the past four, while spending on food and fuel also rose. But the pickup in the latter was no doubt in part due to higher prices, suggesting that in volumes terms the drop in retail sales was even more striking. And with spending on services likely to have been impacted by Covid restrictions since the start of the year, total consumption will have made a non-negligible drag on GDP growth in Q1.

ADP and revised GDP figures the focus in the US
In the US, the ADP jobs report for March will be watched despite its unreliability as a guide for non-farm payrolls – for what it’s worth the consensus on the Bloomberg survey is for a healthy rise of 450k following the increase of 475k in February. In addition, the final estimates of Q4 GDP are likely to see minimal revisions from the previous estimates, with GDP growth remaining around 7.0%Q/Q annualised with personal consumption up a softer 3.1%Q/Q ann. and the core PCE deflator up 5.0%Q/Q ann. Fed-speak includes scheduled appearances from Kansas City Fed President Esther George as well as Richmond Fed President Thomas Barkin.

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