Stagflationary Impulses From December Flash PMI

Germany December flash PMI came in notably lower-than-expected on the services component. Services printed at 48.4 (vs 49.8 cons, 49.6 prior), while manufacturing was broadly in line at 43.1 (vs 43.2 cons, 42.6 prior). The manufacturing print was a 7-month high - further evidence that the German industrial sector has bottomed out at very weak levels of activity.

The release comes across as stagflationary, with output charges rising but demand and employment remaining weak amongst both sets of firms. Key notes from the release are:

• "Operating expenses in the service sector rose sharply and to the greatest extent since May, with surveyed firms highlighting the influence of wage pressures, increased road tolls and general inflation". "At the same time, the drag from falling manufacturing input costs eased".
• "The rate of inflation in average prices charged for goods and services accelerated to a seven-month high and moved back above its long-run average in December".
• "Reduced workloads once again translated into job losses across the German private sector"…"this reflected both a renewed decline in service sector workforce numbers and a more marked reduction in factory headcounts".
• "Customer reluctance, geopolitical uncertainty and high interest rates were just some of the headwinds cited by surveyed businesses".
• However, the rate of decline in new business and work backlogs eased overall, mostly driven by the manufacturing sector, with service sector trends declining at a quicker rate vs November.