Pick-up in headline inflation so far caused by volatile components
This stable development suggests that the deflation risks, which were a matter
of concern for the ECB until end-20161, did not exist in Germany.
The inertia of
the core rate also shows that the significant increase in overall capacity
utilisation in the economy has not yet led to major price pressures. One
important reason is that wage growth has been very subdued until 2017. Hourly
wages were up by only just above 2% p.a. During the past three years (2017:
2.1%). And effective wage growth has not been much stronger, at just above 2
1⁄2% (2017: 2.8%).
However, the gap between the two series, the so-called wage
drift, has widened slightly since 2016.
EU Forecast
euf:ba1.8i:136/nws-01