Both German and Spanish CPI was released today for August. They can be added to the expanding list of countries in the European area where inflation is coming in higher than expected. Germany reported 1.8% year-on-year, with Spain at 2.0%.

To put these figures into context:

  • The average inflation in Germany over the last 5 years was 1.2%, and 0.6% in Spain.
  • The average inflation in Germany since the euro was formed was 1.5%, and 2.2% in Spain.
  • The average inflation in Germany since Bloomberg records began (in 1997) was 1.4%, and 2.2% in Spain.
  • The inflation rate in Germany when the ECB started quantitative easing (QE) was 0.2%, and -0.8% in Spain.
  • The inflation rate in Germany when the ECB expanded QE (in June 2016 post the Brexit vote) was 0.1%, and -0.9% in Spain.
  • The inflation rate in Germany when the ECB announced the extension but reduced amount of QE (the first taper) was 0.5%, and 0.0% in Spain.

France and Italy release their figures tomorrow, so it will be prudent to keep an eye out for that. With regard to inflation, these countries remain the laggards with France at 0.8% year-on-year and Italy at 1.2%. After the figures today, I would expect these to come out higher than forecast – with the obvious implications for ECB policy.

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