Friday, 27 April 2012

Oil Prices Press EU Inflation Lower

Inflation rates in four states dropped to 2% and below. Only inflation in Brandenburg remained above 2% (with 2.1%). As a result, German headline inflation should have dropped in April. Last month, German headline inflation stood at 2.1% YoY based on the national definition and 2.3% YoY based on the harmonised European definition. The April figure looks likely to get close to the ECB's definition of price stability.

Looking at the available components at the regional levels shows that lower inflation is mainly a result of lower oil prices. In fact, most other prices in the economy increased compared with last month. Nevertheless, there are rather "normal" price increases in an economy without severe problems than signs of second-round effects.

With a renewed weakening of the Eurozone economy and waning inflationary pressure in the Eurozone's economic powerhouse, the ECB looks likely to drop warnings about upside risks to price stability in the near term. The ECB tribute to the Bundesbank could have been short-lived.

by Carsten Brzeski, Senior Economist, ING Belgium, Apr 27, 2012 10:15 AM GMT+0100

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