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How Likely Are Markets To React To German & French CPI?

Mar 12 2020, 08:45 PM (BDT) |

French CPI isn’t usually one to trade. However, with all the noise surrounding coronavirus, this particular print might be a little more sensitive than usual.

The German CPI, on the other hand, will be one to keep a closer eye on. In case we get a negative print, and the French figures align with that result, then we could see markets falling harder.

French CPI At Better Levels Than the German Rate

The CPI in France increased to 104.55 points in February from 104.54 points in the previous month. The latest numbers are expected to stay in line with the previous readings, at 0.0%.

Interestingly, the strongest ever CPI posted by France was back in Dec 2019.

The CPI in Germany increased to 105.60 points in February from 105.20 points from the previous month. The latest numbers are expected to stay in line with the previous readings as well, at 0.4%.

At the start of the first quarter, the German economy showed signs of an improving economy compared to the last 2 years. Over that period, German indicators showed poor growth and a slowdown in economic activity overall.

Why Are Economists Alarmed?

Coronavirus will have a say in next month’s release as it is affecting most European economies and it’s likely to affect the rates going forward.

On top of that, we’ve seen the prices of oil deteriorating at an extremely alarming rate too. With crude down too, inflation will again be affected in energy terms, at least.

However, for the current estimates, economists are not and cannot rely on forward rates to calculate estimates. They need to look at existing figures. That said, all-item HICP has fallen in January from 1.4% to 1.2% on a year-on-year basis.

A major drop from 1.9% to -0.3% is expected to be seen in energy-related inflation. However, some of this will be offset by the food, alcohol and tobacco-related inflation, and particularly from unprocessed food. This is expected to increase from 2.3% to 2.7% on a year-on-year basis.

When looking at January’s CPI, this came out at -0.7% on a month-on-month basis. Growth is out of the question and the print drifts further away from the 2.0% target the ECB wants to achieve.

Will the EURO be Affected by the CPI Prints?

Well, with the ECB surprising markets, things could take a different turn. While usually, we can expect at least the German CPI to move the markets a bit, on this occasion, perhaps we won’t, despite the environment being more sensitive.

Now imagine though that the numbers come out positive for both Germany and France. Would you attempt to buy against a falling knife?

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