German Inflation: from desirable goal to a plague

Economic analyst

Yesterday we received new confirmation that high inflation is fast sliding from being a desirable goal to a plague for advanced economies. Fresh data for Germany has highlighted the continued strong growth in wholesale prices, up 0.8% m/m and 13.2% y/y. The year-over-year growth rate is the highest since October 1974, resonating with the energy crisis of that time.
By motioncenter

Since May, when the indicator was near double-digit growth territory, sentiment in German business circles has crept lower. Estimates for October saw the index drop to 22.3, its lowest level since March 2020.

As the FxPro Analyst Team mentioned, the falling business activity could tie the hands of the central bank in tightening monetary policy to fight inflation. This is bad news for the euro, which runs the risk of falling into the role of the yen. The latter seems to have broken free, adding 2.6% since last Monday, showing abnormally high volatility after going above 112. For the EURUSD, the same watershed line may be at 1.1500. For now, we see desperate intraday buying of the Euro on declines under 1.1550.

On Tuesday morning, data on wholesale prices in Germany for September became knownю It showed an increase of 0.8% m/m compared to a growth of 0.5% m/m a month earlier. In annual terms, the growth in September amounted to 13.2%, against 12.3% in August.

At the moment, the main factors influencing the global currency market are the expectations that the Fed will soon announce the start of a reduction in the large-scale program for buying US Treasury bonds, as well as a rally in world energy markets, which raises serious concerns about a further acceleration of inflation.
By Kanok Sulaiman

Rising energy prices and their inflationary impact also raise the likelihood that the Fed will begin cutting asset purchases in November 2021 and raise interest rates in 2022, despite a controversial US nonfarm employment report released last Friday.

Other central banks are also looking at price increases, with the Bank of England signalling it will raise interest rates to curb inflation. Asian markets are particularly at risk. So the Japanese yen fell to new three-year lows, and the South Korean won fell to 1,200 per dollar for the first time in 14 months after the Bank of Korea kept the interest rate unchanged at 0.75% in its monetary policy decision earlier in the day.

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I'm Alex Kuptsikevich, the senior financial analyst at FxPro. Market professional with 16-years’ experience. Author of daily reviews on the impact of economic events with comments regularly featured in top international and Russian media. In my articles, I cover fundamental analysis, global markets, foreign exchange market, gold, oil, cryptocurrencies.


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