German inflation jumps to 3.3%, but energy did about a third of it and core held at 2.4%
Energy prices rose 14.9% from a year earlier in Germany's September flash reading. Services inflation eased for a third month. That split is what the ECB, now at 2.5% after two hikes, has to weigh.
German consumer prices rose 3.3% in September from a year earlier, the Federal Statistical Office said in its flash estimate on Wednesday, up from 2.9% in August. Bloomberg and Reuters both reported it as the highest in almost three years. Prices rose 0.6% on the month. The EU-harmonised measure was also 3.3%.
The headline is not the whole story. Inflation excluding food and energy was 2.4%, the same as in July and August.
The number behind the number
Destatis publishes the weight of each component along with its rate, which lets you see what is doing the work:
| Component | Weight (per 1,000) | June | July | Aug. | Sept. |
|---|---|---|---|---|---|
| All items | 1,000 | 2.3% | 2.8% | 2.9% | 3.3% |
| Excluding food and energy | 821 | 2.5% | 2.4% | 2.4% | 2.4% |
| Services | 503 | 3.1% | 2.9% | 2.8% | 2.7% |
| Goods | 497 | 1.7% | 2.5% | 3.0% | 3.8% |
| Energy (household and fuel) | 74 | 3.4% | 8.3% | 10.5% | 14.9% |
| Food | 105 | 0.4% | 0.4% | 0.1% | 0.4% |
Energy is only about 7% of the basket, but at a 14.9% annual rate it accounts for roughly 1.1 percentage points of the 3.3%, about a third of the total. Take it out and the rest of the basket is running near the 2.4% core rate. Services, the part most tied to wages, has slowed every month since June, from 3.1% to 2.7%. The whole rise since June is in goods, and within goods, mostly energy.
What the headline gets wrong
"Highest in almost three years" suggests broad inflation coming back. The table shows an energy shock in an economy whose underlying inflation is flat. That is exactly the case ECB board member Isabel Schnabel addressed in a speech on Wednesday. She rejected the idea that central banks can simply "look through" supply shocks: if a shock is big or persistent enough to push the projected inflation path above target, she argued, tightening is the right response. The ECB has raised its deposit rate by 50 basis points since June, to 2.50% from September 16.
So the question for the next meeting is not whether 3.3% is too high. It is whether energy at 14.9% starts to show up in services and core. On this reading, it has not yet. With core at 2.4%, the ECB's deposit rate is only about 0.1 points above underlying inflation.
Who it hits
Currency traders: the euro was at $1.1345 around midday in New York, little changed on the day despite the higher headline. U.S. importers paying in euros for German machinery, parts or wine: the exchange rate depends partly on whether the ECB keeps hiking, and a flat core reading is an argument for it to wait. Energy watchers: Brent crude was near $102.70, up about 3% on the day, so the energy line is unlikely to fade in October's reading.
Destatis will publish final September figures on October 13. For the U.S. picture, see our story on August PCE inflation, where core was 3.0%.
Sources: Destatis; European Central Bank; Bloomberg; Reuters; market levels from our markets page. The energy contribution is our calculation from Destatis weights. This is market information, not investment advice.
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