- German inflation report was moved forward by 2 hours
- Both CPI and HICP beat forecast in July (preliminary reading)
- Euro stays little changed in the aftermath
Some could have been taken by surprise when the German inflation report was released at 11:00 am BST. It had been moved forward by 2 hours without providing any reasons. Either way, it does not matter for us, so let’s start analyzing the data.
CPI rose from 1.6% to 1.7% in a yearly basis in Jule while a forecast indicated a deceleration to 1.5% yoy. In turn, HICP stayed unchanged at 1.5% yoy against an estimate 1.4% yoy. In terms of a monthly basis, there were positive surprises as well. Both CPI and HICP came in at 0.4% mom, whereas consensuses pointed to increases by 0.2% and 0.3% respectively. Admittedly, there have been preliminary readings so some revisions cannot be ruled out, however the data looks really solidly.
Higher inflation could offer the ECB more tolerance with regard to the higher euro, but that tolerance might be contained after all. There is guesswork that a rise in the EUR by 10% could give rise to a decline in inflation by more or less 0.4/0.5pp. That’s the reason why the ECB could stay vigilant if the euro strengthens too much and too quickly.
A reaction on the euro has been pretty subdued so far as the regional readings suggested a better figure for the whole economy. By and large, the EURUSD has jumped towards 1.1720 but has reversed almost immediately to levels seen before the data. The price is being underpinned by a short-term trend line, hence until the support is respected, bulls could feel fairly comfortably.