According to the preliminary estimate, German HICP inflation eased more than expected in August, reversing last month’s upward surprise. German inflation dropped by 0.1% M/M to an annual level of 2.4% Y/Y, while the consensus was looking for a decline to 2.5% Y/Y. Regional details show that the downward surprise was mainly
due to lower prices for food and energy, while prices of leisure and entertainment and clothing rose in August, probably pushing the core reading somewhat higher.
In July, German inflation surprised on the upside of expectations, while euro zone CPI surprised on the downside due to several special factors. As part of these special factors might be reversed in August, we don’t see reasons to expect a decline in the euro zone CPI reading too and even believe that the risks, if there are any, are tilted to the upside of the 2.5% Y/Y consensus estimate.