Intraday macro data coming out of the German economy for the month of February can see a consistent pickup in consumer prices inflation, especially the preferred ECB dataset, the HICP has printed a consistent 1.6% in February in Germany, with a tick up to 107.4 from a 106.8 in January.
The other consistent dataset, that could be somehow encouraging for ECB inflation expectations, has been the CPI data making a 0.3% leap higher to 1.3% for February, adding to the consistency that in the German economy, although the prolonged lockdown economic conditions, consumer prices have probably driven the bulk of inflation stabilisation above the 1.0% threshold. However, there will be some main factors for the ECB to take into account, the first can be the correlation between wage growth and consumer prices growth, thereof it’s possible to see the economic differential between EuroZone countries, where the anaemic wage growth often matches anaemic and deflationary consumers prices and inflation pressures, in other words, the big puzzle of the economic convergence principle that guided the development of the Euro Area single market and then of the Euro, continues the jigsaw of divergence.
Other main factors that the ECB will have to examine going forward will be the supply/demand shock on the Euro Area economy and the wider implications of future supply chain changes that will have to feed through productions and consumer prices, meanwhile prolonged unemployment and subdued economic growth will have a dampening effect in consumer demand. Supply chains repositioning and changes are likely to become a major focus point for all developed economies going forward, given the 2020 global health emergency has resurfaced the vital importance of strategic productions and supply-chains to be done locally, nevertheless, the Euro Area and European Union at large continue to struggle with the development and implementation of adequate vaccine programmes that would be the pinprick Deus ex Machina path to herd immunity, safe economic and social environments.
The aggregate Money supply in the German economy has grown to €2,67 trillion Euro in January, which could have boosted consumer demand.
Although consistent inflation data, in a recessive economic environment, waiting for Godot the re-opening, Bunds yield curve flat with yield compression pressures, in fact, the 10Y Bund yield recedes 2,8 basis points from -0.309% going more negative to -0.328%, nor DAX30 equities have felt the pressure to discount higher inflation. Now, the profound dyscrasia between EuroZone yield curves, the stocks and flows of Euro Area sovereign debt and their respective sustainability, given the inflation expectations on the horizon, would make the EuroZone negative money market rate framework untenable going forward.