Inflation in Germany slows down, euro gains

There are more and more signals on the market indicating a slowdown in inflation. All eyes are on of course CPI index from the US, which showed less than two weeks ago that the peak of price growth in the US is probably behind us. Yesterday producer prices in Germany surprised, falling in October month-on-month for the first time in almost a year and a half. On a year-on-year basis, the PPI index decreased significantly from 45,8 percent to 34,5 percent. up to XNUMX percent

Optimistic data from Germany

Germany may be pleased. In addition to the fact that the weather in Europe has been kind so far and thus gas storage facilities are almost full, there is also the topic of slowing producer prices. Yesterday's macro data give more hope that the peak of consumer inflation is also not far away. It may increase further at the beginning of next year, as some of the higher energy prices will reach households only with a significant delay. However, the marked fall in energy prices at the producer level suggests that this effect should end in a few months, especially as emerging government interventions will drive down prices in the coming year.

A clear decline in PPI is mainly the result of lower energy prices by more than 10 percent. Taking into account other components, there is a slight increase compared to the previous month. When it comes to intermediate goods, there is a year-on-year decline. For consumer goods (including cars), which show a slight lag, the year-on-year rate increased slightly again. Here, however, the peak seems to be relatively close.

The ECB meeting is not until December 15

Optimistic PPI data this is just an introduction to next week's CPI and HICP readings for Europe. If we see below-consensus readings here, the market will begin to price in the ECB's softer stance on further monetary tightening, which will not support the single currency. The next decision, however, will not be made until December 15.

Yesterday, the main currency pair headed south quite dynamically. However, the move was largely driven by reports of Covid-19 deaths from China. Rise in risk aversion favored the dollar, and PPI data were only in line with this trend and could only intensify the euro. Currently, the major currency pair is trading around 1,0260.

Source: Łukasz Zembik, OANDA TMS Brokers