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German Consumer Sentiment Dampened by Inflation: GfK

German Consumer Sentiment Dampened by Inflation: GfK

Nick Cawley, Strategist

Talking Points

- Inflation hits sentiment but consumers are still spending.

- EURUSD slips a touch lower after hitting multi-week highs yesterday.

- See the DailyFX Economic Calendar and see what live coverage for key event risk impacting FX markets is scheduled for the week on the DailyFX Webinar Calendar.

Consumer sentiment in Germany has edged lower, with the April GfK sentiment reading slipping to 9.8 from 10 on increased fears over rising inflation in Europe’s largest economy.

“A rise in inflation in Germany and the resultant intensified concerns over income buying power have obviously hindered full recovery of consumer sentiment in March this year. While economic expectations and the propensity to buy largely compensated for losses from the previous month of February, income expectations were down for the second time in a row. Since the propensity to save increased once again, consumer climate declined overall in March,” GfK said.

Consumer prices in Germany rose by 2.2% year-on-year in February 2017, compared to 1.9% in January, the highest inflation rate since August 2012. German officials are becoming increasingly vocal about the current ultra-loose ECB monetary policy, which they say is stoking inflation and hurting German savers.

The survey of approximately 2,000 people showed that while sentiment fell, consumers “remain on a shopping spree.”

“GfK forecasts that there is light at the end of the tunnel for the current minor blip in the consumer climate, if the inflation rate is to fall again due to the current decline in crude oil prices. Because the USA has significantly expanded its shale oil production, the restriction in producing crude oil agreed by OPEC is being sidelined. Moreover, restrictions on oil quantities are not being completely adhered to. This consequently puts additional pressure on oil prices,” it said.

EURUSD edged slightly lower in early turnover, after hitting a seven-week high yesterday. The single currency has rallied from a low of just over 1.0500 at the start of March as thoughts turn to how, and when, the ECB will begin to normalize its monetary policy.

Chart: EURUSD One-Day Timeframe (November 25, 2016 – March 23, 2017)

German Consumer Sentiment Dampened by Inflation: GfK

Chart by IG

--- Written by Nick Cawley, Analyst

To contact Nick, email him at nicholas.cawley@ig.com

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