fundamental alert

German Producer Price Accelerates Despite Falling Commodity Prices (Update)

Monday, 20 October 2008 06:16:34 GMT  |  DailyFX Research

German September producer price inflation unexpectedly accelerated to 8.3% y/y from 8.1% y/y in August, with prices up 0.3% over the month. This was far higher than expected, with market consensus looking for a 0.5% m/m drop and a y/y rate of 7.5% given lower oil prices. Excluding energy producer prices were up 3.6% y/y, compared to 3.5% in August, which is considerably above the ECB's 2% limit for price stability and indicates that underlying price pressures remain and that it is too early to give the all clear on inflation, even though the headline rate should now be on its peak.

Meanwhile, Euro Dollar (EURUSD) reclaimed 1.3500 in to the European session, with EUR-JPY and EUR-CHF demand fueling stop loss interest through 1.3500-10 to hit 1.3529 intra-day highs. Healthy gains were noted on the Nikkei and DJIA futures moved sharply higher to encourage fresh speculative activity. Euro movement is heavily influenced by external factors, with equity markets and credit markets still driving price action. Focus should turn back to the real economy once there are concrete signs that the worst of the financial market problems have eased. On the weekend, ING received EUR 10 bln for core capital and Bayerische Landesbank is expected to receive similar funds from the German government's rescue fund. Meanwhile, on the data front, German PPI unexpectedly rose 0.3% m/m and 8.3% y/y, but with little impact on price action. Most market participants believe the worst of the inflation problems are behind us, with commodities weakening and the growth outlook heavily skewed to the downside.

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