Restaurant VAT Hike, Energy Policies Seen Impacting Jan Inflation

Germany flash January inflation is released at 1300GMT/1400CET Wednesday, though the print will as always be preceded by state-level data through the morning (which MNI will use to estimate the national figure). This month, the state of North Rhine Westphalia (~21% of the national index) will report alongside the majority of states at 0900GMT/1000CET (rather than 0630GMT previously).

• HICP consensus (bbg): 3.2% Y/Y (3.8% prior) / -0.2% M/M (0.2% prior)
• CPI consensus (bbg): 3.0% Y/Y (3.7% prior) / 0.1% M/M (0.1% prior)
• With respect to services, the VAT rate on restaurant meals has been increased from 7% to (the normal) 19%.
  • Goldman Sachs note that pass-through of this increase is likely to only be partial, due to the weak demand environment.
  • Morgan Stanley estimate this policy change will increase core CPI by 6bp.
  • Barclays look for “a 3pp boost to % m/m growth in restaurants and cafes HICP, translating to c.1.75pp boost to recreational services ex. package holidays and accommodation”.
• Otherwise, focus will be on energy components, following the unwinding of Government energy support measures. In particular, Germany has increased the CO2 price on petrol, heating oil and gas and ended subsidies for electricity network charges. This, alongside base effects stemming from the removal of gas and electricity price caps will push energy inflation higher.
  
  • Goldman Sachs estimate German energy inflation to increase to +3.2% M/M (vs -2.1% in December).
  • Nomura look for a +8.8% M/M rise in electricity and +3.5% M/M rise in gas prices.
  • Barclays forecast a +8.0% M/M rise in electricity HICP and a 6.5% M/M rise in gas HICP in January.
• The German tobacco duty (like France) has also been increased from January, and Nomura estimate a +2.4% M/M rise in tobacco prices as a result.
• The January flash PMI signaled that wage pressures continue to drive inflationary pressures in the services sector, suggesting the disinflationary progress that is expected will be gradual at best.
• Furthermore, the January flash PMI saw manufacturers begin seeing the impact of higher freight rates resulting from Red Sea tensions. While these effects are unlikely to be fed through in the near future, they add upside risks to the medium-term outlook for core goods. In the near-term, the December PPI data was consistent with further core goods CPI disinflation ahead.