Source: Bloomberg
Source: Bloomberg

Goldman Sachs analysts write on the prospects for German inflation:

“Germany core inflation has remained stubbornly low of late, forcing an adjustment through even weaker inflation rates in the other less competitive Euro area countries.

But the recent pick-up in German rent inflation and its potential knock-on effect on German wage and prices has raised hopes that such a low ‘German inflation cap’ will finally be lifted, thus paving the way for higher core inflation at the area-wide level.

While we expect rent inflation to continue to make positive contributions to German core inflation (given strong immigration and stable housing activity) in the next quarters, we think: (1) the likely low level of inflation expectations in Germany and (2) the focus of German firms on international competitiveness issues are both likely to limit the pass-through from rents to German wage and consumer prices.”

Meanwhile, a measure of future inflation derived from inflation-linked German government securities, five-year inflation expectations five years forward, continues to fall.