German inflation, pointing to euro zone, picks up less than expected

BERLIN Tue Apr 29, 2014 9:52am EDT

The construction site of the new headquarters of the European Central Bank (ECB) is seen from the observation deck of the ''Maintower'' in Frankfurt, April 25, 2014. REUTERS/Kai Pfaffenbach

The construction site of the new headquarters of the European Central Bank (ECB) is seen from the observation deck of the ''Maintower'' in Frankfurt, April 25, 2014.

Credit: Reuters/Kai Pfaffenbach

BERLIN (Reuters) - German annual inflation accelerated in April but less than expect, preliminary data showed on Tuesday, complicating the European Central Bank's decision on whether to act against deflationary trends.

Euro zone inflation is running at 0.5 percent and there are concerns about deflation. A report due on Wednesday is expected to show inflation in the euro bloc picking up to 0.8 percent in April, but that would still be well below the ECB's medium-term target of just below 2 percent.

On Monday ECB President Mario Draghi played down the likelihood of any imminent money-printing to buy assets, saying that while low inflation would persist, such quantitative easing remained a way off, according to a source.

German consumer prices harmonized to compare with other European Union countries - the HICP measure of inflation used by the European Central Bank - rose by 1.1 percent in April, data from the statistics office showed.

That was less than the 1.3 percent forecast in a Reuters poll although it compared with 0.9 percent in March.

"The increase is slightly too small to really lean back and relax... It's clearly going to give them a headache," said ING senior economist Carsten Brzeski.

"If the increase in euro zone inflation tomorrow is also only as small as the German HICP increase, the chances of action have increased, combined with today's disappointing monetary data," he added.

Other data on Tuesday showed lending to euro zone households and companies declined further in March and money supply growth slowed.

ECB ACTION?

Christian Schulz, senior economist at Berenberg bank, said the German inflation reading could point to a lower-than-forecast euro zone figure and could therefore pile more pressure on the ECB to ease policy soon.

Although ECB staff forecasts in March pointed to inflation picking up to 1.5 percent in 2016, and 1.7 percent in the final quarter of that year, the central bank has faced pressure to act - in particular from the International Monetary Fund.

"I think that monetary policy should do everything it can in order to make sure that inflation goes back to fulfill the mandate of the ECB," Jose Vinals, director of the IMF's monetary and capital markets department, told Reuters on Monday.

Last week, Draghi set out three scenarios under which the bank could act: an unwarranted tightening of the policy stance, impairments in the transmission of policy, or a deterioration of the medium-term inflation outlook.

ECB Vice President Vitor Constancio said on Monday April's inflation figures for the euro zone should not alone trigger a policy change because "it's not just one or two numbers that matter".

DOMESTIC SITUATION

Moderate inflation, combined with a strong labor market and low interest rates, is helping to boost domestic demand, on which the government is relying to prop up growth this year as foreign trade is expected to be weak.

A survey by GfK market research group published on Tuesday showed German consumer morale remained at its highest level in more than seven years heading into May as consumers' income expectations hit a record high, helped by modest inflation and expectations that pay will rise.

But Schulz said German inflation was likely to pick up.

"There's real hope that German inflation will stabilize and gradually increase due to domestic pressures such as wage settlements, which could be quite generous given the very low unemployment rate in Germany and the strengthening recovery," Schulz said.

Unions have already secured strong wage hikes for chemical workers and public sector employees this year and GfK market research group has said the first wage deals in 2014 suggested that wage increases of 3 percent or more were realistic.

(Reporting by Michelle Martin; additional reporting by Paul Carrel in Frankfurt; Editing by Jeremy Gaunt/Madeline Chambers)

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Comments (1)
Leras wrote:
The Austrian Economists are right here regarding intervention to keep rates rates down….but it goes further! Monetary Intervention to keep rates this low, is a scandal since it results in a situation where PRIVATE BANKS = GOVERNMENT!

What is more scandalous is that Central Banks became “free funders” (zero basis rates) wordwide of PRIVATE BANKS, with this “DEAD END” and “No BACK UP PLAN” policy , while they cannot assure that PRIVATE banks will ever give money to the Public for Investments, etc!

So in result of these policies, a crisis (originated by PRIVATE banks) resulted in:
a. Too big to fail AND jail class of bankers – who went to jail for Money Laundering? The low states that Employees should be blamed, not just a fine to the banks we are done!!)
b. Making them FOREVER (it doesn’t appear to be ending in the future) “free” borrowers of “fresh cut” money – I mean the cost to print would be higher – but they are handled by taxpayers (it’s a bit tragic)!
c. Practically, Goverments in Europe have assigned to Private Banks – BOTH monetary policy (actual loans and rates are far from zero) and a “new” fiscal policy, since they get to decide “where to give” and they criteria of all type of funding. E.g. if you are a cousing…you get a loan…a friend maybe…but if “you are not liked” things are hard for someone in any possible “opposition”.

This is “new” world under formation– with a ‘made up” crisis that has Monetary policy origination – Private Bankers ex people (that work for Supervisory Authorities currently) – and that has so far resulted in a WORLDWIDE disappearance of middle class – and the creation of “Too Big to fail & jail GODS with suits – that in some cases they can even be APPOINTED to be PRIME MINISTERS (e.g. Papadimos in Greece, Monti in Italy!) without electoral process!

Of course, ECB is a co-responsible to this, so don’t expect any real actions against the real problems.

Apr 29, 2014 6:33am EDT  --  Report as abuse
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