Deutsche Lower CPI View: Sub-2% By Aug, But Core To Stay Sticky

Deutsche Bank is expecting German headline CPI to drop to 2.4% Y/Y in February (vs 2.6% Bloomberg consensus and 2.9% in January), and to drop below 2% by August, per a note released Tuesday. Core inflation is seen to be stickier, however, driven by strong projected wage increases.

• Looking at the broader picture, Deutsche has lowered its annual average CPI forecasts to 2.2% in 2024 (from 2.6%) and 1.9% in 2025 (from 2.2%), largely on a "pronounced energy price driven disinflation process".
• Combined with disinflation in non-energy industrial goods, this leads Deutsche to project headline moving below 2% by August, with potential for this happening already in spring.
• But core is seen relatively more stubborn, at 2.9% in 2024 (from 3.1%) and 2.7% in 2025 (unchanged), "because of the lagged effects of high(er) wage settlements on service prices".
• In February, specifically, Deutsche sees Core CPI to print 3.2% Y/Y, based on a moderate uptick of NEIG prices (+0.15% M/M) and a services inflation firmer at +0.3% M/M. Regarding food, Deutsche expects prices to increase by a firm +1.3% M/M but disinflation on the yearly rate to 2.7% Y/Y.
• German February flash inflation data will be released Thursday after state-level data in the morning. For MNI's full Eurozone inflation preview, including a summary of analysts notes released earlier see PDF here.