German Regional CPI Lifts ECB Pricing, 4.00% Terminal Deposit Rate Tested

This morning’s German regional CPI data biased ECB-dated OIS data, with slight upside risks to the consensus view on headline national German CPI noted.

• The strip is a touch steeper, with liquid contracts 2-4bp firmer.
• Pricing is off hawkish extremes, given the slightly mixed nature of the regional releases, with 14bp of tightening showing for next month’s meeting, while terminal deposit rate pricing sits at 3.98%, after threatening the 4.00% mark earlier today.
• The uptick in Spanish CPI was generally in line with expectations.
• Belgian CPI came in at 4.09% Y/Y & 0.76% M/M in the August flash estimate, vs 4.14% Y/Y/0.81% M/M prior. Owing to methodological differences, the HICP reading was much lower than this, coming in at 2.4% Y/Y - but was a large acceleration vs 1.7% in July and 1.6% in June.
• ECB Governing Council member Centeno noted that he is firmly convinced that inflation will fall below 3% by year-end, with inflation expectations remaining anchored. He also stressed that there is no problem when it comes to monetary transmission. Elsewhere, he noted that the downside risks to growth outlined in the ECB’s latest economic projections are materialising.