Core CPI Outlook: Services Softens, Energy Uptick Underwhelms

A closer look at this morning's state level flash data suggests that German core CPI clearly decelerated in April (tracking at 3.0% vs 3.3% prior, based on states making up 50% of the national CPI basket weight). In turn that deceleration looks to have been driven by services CPI which seems to have also slowed down sharply (tracking at 3.3% vs 3.7% prior) with Easter effects likely coming into play at least to some extent. We get the national level release at 1300BST/1400CET.

• Looking at the services-heavy COICOP sub-components (for which states representing around 90% of the national CPI basket have reported data), restaurant and hotels CPI tracks at 6.3% Y/Y (vs 6.4% prior), while transport CPI tracks at 0.9% Y/Y (vs 2.0% prior).
• Recreation and culture inflation has decelerated slightly, tracking at +1.8% Y/Y (vs 2.0% prior), with education broadly unchanged (+4.9% Y/Y vs +4.8% prior).
• Non-energy industrial goods prices looked soft as well (ie furniture and clothing prices).
• The magnitude of the impact of April Easter effects remains uncertain for now - initial state-level evidence points towards a negative contribution of airfares in April to the yearly rate (Saxony airfares for example -11.0% Y/Y). Note the low contribution of airfares to the overall headline print, however.
• Energy prices meanwhile seem to have materialized their expected uptick in April driven by the gas VAT increase to 19%, but perhaps to a lesser extent than projected by analysts going into the release (we track energy at -1.1% Y/Y vs -2.7% in March, based on around 50% of states).