German CPI Deflates...on Some Metrics-Shows Promise...and in Promise There Is Peril

Summary

• German HICP fell 0.2% in October while core rose 0.1%, with domestic headline inflation at -0.2% and CPI ex-energy flat.
• Prices declined month-to-month for food, clothing, footwear, transportation, and recreation & culture.
• HICP annual inflation eased from 2.8% over 12 months to 2.7% over six months and 2.6% over three months.
• Core HICP rose 2% over 12 months, 2% over six months, and 1.6% over three months.
• Domestic CPI annual inflation was 2.8% over 12 months, 2.1% over six months, and 2.9% over three months.
• Domestic CPI ex-energy rose 1.9% over 12 months, about 2% over six months, and 1.6% over three months.
• Inflation diffusion over 12 months is 45.5%, indicating more deceleration than acceleration.
• Six-month inflation diffusion is 45.5%, while three-month diffusion is 63.6%, showing broad inflation movement.
• Brent crude measured in euros rose 76% over 12 months and 200% over three months compared to six months.
• Oil price outlook remains uncertain, complicating economic forecasts.
• Central banks can utilize scenarios with different oil price values without attaching fixed probabilities.
• Headline inflation is more volatile than core inflation, which is behaving in line with ECB guidelines.
• Future inflation depends on geopolitical factors, oil prices, and supply chain disruptions.
• The author suggests central banks should clarify their inflation targets and reaction to supply constraints rather than providing forward guidance on unknown variables.