Updated

Updated · investinglive.com · Aug 12

Germany's July Inflation Accelerates to 2.8% as Fuel Prices Jump 23% After Rebate Ends

Updated

Updated · investinglive.com · Aug 12

Germany's July Inflation Accelerates to 2.8% as Fuel Prices Jump 23% After Rebate Ends

Q: With fuel discounts ending and global conflicts brewing, could a hidden energy shock force the ECB to abandon rate cuts entirely?

Yes, a renewed energy shock could derail ECB rate cuts, but the July data do not yet point to a full abandonment as the base case. Germany’s inflation report shows why the risk is real. Headline HICP held above target at 2.8% year on year in July, while monthly HICP jumped 0.9%. The main culprit was energy: energy prices rose 8.3% from a year earlier, and motor fuels surged 23.0% after the temporary fuel discount ended on June 30 and oil prices climbed amid the Iran war. Euro area inflation also edged up to 2.9% in July, with energy inflation at 10.0%. What matters for the ECB is whether this stays a one-off fuel-tax and oil-price effect or turns into broader inflation. On that front, the picture is mixed. Core inflation in Germany was still sticky at 2.4%, services inflation was 2.9%, and rents kept rising, which suggests underlying pressures have not vanished. But food inflation was subdued at 0.4%, household energy prices were still lower year on year, and German producer prices eased to 1.8% in June, limiting evidence of a fresh economy-wide price spiral so far. That leaves the ECB in a cautious position. If oil and gas prices remain high, supply disruption worsens, or energy costs spill into wages, transport and services, rate cuts could be delayed for a long time and possibly dropped from near-term plans. But absent clear second-round effects, policymakers are more likely to postpone cuts rather than rule them out entirely.

2 articles · Updated · investinglive.com · Aug 12

Germany confirmed July consumer inflation at 2.8% year on year, up from 2.3% in June, with the harmonized HICP rate also at 2.8%.
Destatis said the June 30 expiry of the fuel rebate likely drove the increase, helping push fuel prices up 23.0% from a year earlier after 11.3% growth in June.
Core inflation eased to 2.4% from 2.5%, while services inflation slowed to 2.9% from 3.1% and food inflation stood at 2.5%.
The mix leaves price pressures elevated despite some easing beneath the headline rate, keeping attention on energy costs and sticky services prices.
For the ECB, the data reinforces the risk that inflation stays above the 2% target into the autumn, especially if the US-Iran conflict keeps energy prices supported.