Double-digit PPI may unnerve German policymakers

Germany Producer Price Index growth accelerated to 10.4% y/y in July. For the first time in the indicator’s 50-year history, the figure shows a double-digit growth. It is also notable for markets that the actual statistics are much stronger than expected: 1.9% m/m and 10.4% y/y versus 0.8% and 9.2%, respectively.

Such a release is thought to be bullish for the Euro as it reflects the overheated economy and brings policy normalisation closer to date. But the EUR is getting limited help today as the ECB is assuring at every opportunity that it will not rush to wind down asset purchases on the balance sheet, allowing money to lose its value.

There are plenty of inflation hawks amongst the German policymakers, so it is worth paying increased attention to their comments in the coming days. They can use all their political power to influence the ECB’s view. If we see this, it will be a game-changer for the Eurozone, which is now often compared with Japan with its life-long QE and sub-zero rates.

The FxPro Analyst Team