German inflation set to fall sharply in March

30 March 2023

Emily Nicol
, 
Chris Scicluna

German inflation looks set to fall sharply in March
Ahead of the euro area flash inflation estimates tomorrow, today brings preliminary numbers from certain member states including Germany, Spain, Belgium and Ireland. And the initial readings from Länder suggest a notable decline in the headline German national CPI rate when it will be published later today. In particular, headline inflation in North Rhine-Westphalia – the largest federal state – fell 1.6ppts to 6.9%Y/Y, the lowest rate since last July. Admittedly, this drop principally reflected the energy component, where fuel prices were down more than 19%Y/Y and household energy inflation eased 14ppts to 17%Y/Y. In contrast, food inflation continued to trend higher (up 1ppt to 22.4%Y/Y), with particularly eye-catching increases in items from quark (71%Y/Y) to carrots (45%Y/Y)! And while inflation of household goods edged lower, clothing inflation accelerated further. And services inflation moved sideways at a level that is elevated by historical standards (4.3%Y/Y).

Spanish inflation came in well below expectations, down to its lowest rate since July 2021
This morning’s drop in Spanish inflation was even more striking. Indeed, the headline harmonised rate fell a much larger-than-expected 2.9ppts to 3.1%Y/Y, the lowest since July 2021. The national CPI rate also dropped 2.7ppts to 3.3%Y/Y. As in NRW state, Spain’s statistical office (INE) attributed the latest developments principally to lower electricity and fuel prices compared with a year ago. Admittedly, when excluding energy and fresh foods, INE’s core inflation measure remained extremely elevated at 7.5%Y/Y. However, this was down 0.1ppt from February raising some cautious optimism that underlying price pressures might well have peaked.

European Commission sentiment survey likely to signal ongoing recovery at end-Q1
Looking ahead, this morning will also bring the Commission’s economic sentiment survey results, which – in line with the results from the flash PMIs and other national releases over recent days – are expected to suggest a pickup in recovery momentum in the euro area at the end of the first quarter consistent with a return to modestly positive GDP growth in Q1. The improvement is likely to reflect greater confidence among businesses, particularly in the services sector. In contrast, the flash consumer confidence index edged slightly lower this month, by 0.2pt to -19.2. Of relevance to the ECB, the survey will also provide an update on price-setting expectations.

US Q4 GDP to see minimal revisions, weekly jobless claims to remain low
In the US, the third and final estimate of Q4 GDP growth is highly likely to be very close to the current estimate of 2.7%Q/Q annualised. Consumer spending (1.4%Q/Q annualised in the second estimate) might be revised up slightly to negate a downward revision to the contribution from inventories (currently a chunky 1.5ppts). The price deflators are also expected to see minimal change. New information on gross domestic income (GDI), an alternate measure of growth, and aggregate corporate profits, also of interest to the Fed in gauging the nature of current price pressures, will be published with the final Q4 GDP report. Beyond the national accounts, the usual weekly jobless claims data are also due in the US, with initial claims expected to come in below 200k for a third successive week, having ticked above that threshold at the start of this month for the first time since the first week of January.

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