GoldPrice.

German inflation slowed sharply this month according to new data from the Federal Statistics Office.

Inflation has now dipped below the European Central Bank’s (ECB) target level right after the bank declared an end to the four-year bond buying scheme.

Key Takeaways

• The data shows a steeper slowdown than expected with forecasts predicting a rate of 1.9% after the prior month’s 2.2%.
• Harmonized consumer price inflation (HCIP) rose by 0.3% in Germany, the largest eurozone economy, 0.1% lower than expected.
• The ECB recently ended a bond-buying scheme worth almost $3 trillion USD in the face of increasing economic uncertainty.

The annual inflation rate in North Rhine-Westphalia, Germany’s most populous state, slowed to 1.8% in December from 2.4 % the month before. Inflation in the second-most populous state, Bavaria, came in at 2.2% after a reading of 2.7% the month before, and in the third-most populous state inflation dipped from 2.7% to 2% (non-harmonized with other EU countries).

December’s weak inflation report was marked by falling energy prices, which are notoriously volatile.  with the ECB’s target rate of 2% now further away. However, the ECB states that the medium-term outlook for price stability will not be affected by the recent inflation data.

Spanish-EU harmonized consumer prices rose 1.2% annually in December compared to the 1.6% rise that was forecast and the reading of 1.7% from the previous month.

The ECB stated yesterday that the world is in for a global economic slowdown in 2019 with stability due perhaps the following year, although prices are expected to rise regardless.

The data is growth is weaker than predictions and forecasts made even within the last month, with Brexit, the global trade war, and the conflict between the Italian budget deficit and the European Commission all adding to the instability and cloudy outlook.

Declining oil prices are now visible in the first flash inflation numbers for December. Large declines in headline inflation in Germany and Spain. German core inflation remains moderate despite tight labor market and higher wage growth. #macrobond pic.twitter.com/PhOTa2ZL6v

— Ulrik Harald Bie (@UlrikBie) December 28, 2018

Expert Outlook

The ECB has promised to keep interest rates low until next summer now that the  quantitative easing scheme of buying bonds to stimulate the economy has run its course. ECB president Mario Draghi has made no attempt to alter market expectations which predict that a first post-crisis rate won’t be introduced for over a year.

Market Response

Gold is still climbing following yesterday’s gains and after recovering from a steep dip in the early morning. Spot gold last traded at $1,278.80/oz, up 0.76% on the day which has had a high of $1,281.76/oz and a low of $1,274.32/oz. February futures are trading at $1,281.00/oz and down 0.1%.

It’s possible that, among other factors, gold is being spurred on by the repeated statements that a global economic slowdown is on the way.