Softer German inflation won’t move the ECB

At first glance, the German December inflation release (prelim) was a big surprise to the downside, coming in at 8.6% vs 9% expected and down from 10% in November. Breaking this down, the fall was all from energy and goods components. That’s good news for energy bills and indicates that supply chain bottlenecks are improving. But the services component, a better indication of wage inflation, actually moved up to 3.9% from 3.6% in November. The hawks will care more about that than the drop in headline, so I don’t take any comfort, or draw any ECB conclusions, from the inflation surprise today.

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