As of June, positive signs began to appear that disinflationary pressure in global economies, accompanied by the demand shock of the coronavirus crisis, weakened as monetary and financial authorities increased the money supply by aggressively expanding.
In Germany, Eurozone’s largest economy, Consumer Price Index (CPI) rose 0.6 percent in June compared to the previous month and 0.9 percent compared to the same month last year, according to data released today by the Destatis.
Considering the sub-indices of the data, recreation and culture showed the biggest rise on a monthly basis in June with a rate of 3.8 percent. On the other side, clothing and footwear showed the biggest decline with a rate of 2.3 per cent. On annual basis, the biggest increase was in the food and non-alcoholic beverages index with a rate of 4.1 percent, and the biggest decrease was recorded in the transport index with a rate of 3.1 percent.
Starting 2020 with an increase of 1.7 percent on an annual basis, consumer price index moved within ‘2 per cent’ path targeted by the German government and Bundesbank. Upon the identification of novel coronavirus (Covid-19), consumption behavior had declined sharply due to household spending deteriorated in line with measures implemented by the public authority to limit the outbreak. After the pandemic was brought under control, the domestic demand started to recover due to the gradual removal of the measures, which allowed Germany to limit the fall of the CPI in the locomotive economy of Europe. In addition, the recovery in oil prices and the easing of downward pressure in energy inflation possibly supported the moderate recovery in the CPI on an annual basis. It is also important to note that in response to the outbreak, German government’s historic sized subsidies and Bundesbank’s decision to increase the volume of currency in circulation are also important factors supporting domestic demand. In this context, we believe that the CPI indicator will re-enter the Bundesbank’s target path and lead to a moderate recovery as soon as July, when the monetary and financial authorities’ expansion policies will continue to appetite household consumption and the recovery in international oil prices, and energy inflation will continue to lose momentum.