According to preliminary data, German consumer prices rose 0.1% in November. The year-on-year rate was unchanged at 0.8% and both metrics were in line with market expectations.
Goods prices rose 0.5% in the year to November from 0.4% the previous month with a significant acceleration in food inflation to 1.2% from 0.0% offset by a faster decline in energy prices.
There was a decline in the annual rate of services-sector inflation to 1.1% from 1.3% in October with the annual increase in rents unchanged at 1.4%.
The inflation rate will continue to have an important underlying short-term impact given the impact on central bank policy expectations.
The Bundesbank will remain very sensitive to rising inflation and any move above the 1.0% would be likely to harden opposition to a continuation of the ECB’s bond buying programme.
Determined German opposition within the council would also make it more difficult for the ECB to push ahead with a continuation of full bond buying and would increase the likelihood of a compromise outcome.
Overall, the latest data is likely to ease concerns over rising inflation to some extent and will also tend to reduce slightly the risk of a very hard-line Bundesbank stance at the December ECB meeting. There is a slightly higher potential for a dovish ECB stance in December, especially if there is a low Eurozone inflation print on Wednesday, although there will still be a high degree of uncertainty over the meeting’s outcome.
EUR/USD edged lower after the data and was close to daily lows around 1.0575, but bund prices were unable to recover ground and were still down around 13 ticks on the day with DAX index close to unchanged for the session.