According to the preliminary figures from the German statistical office, consumer prices rose 0.1% month-on-month in April as expected. In April, German consumers once again had to pay more for petrol than in March. In contrast, heating oil prices declined slightly, as oil prices have recently fallen somewhat (see chart). A stronger increase in consumer prices was prevented by the abolishment of university tuition fees in the federal state of Baden-Württemberg. As a result, the rate of inflation drops to 2% in April (March: 2.1%) – its lowest level since January 2011. As the revolutions in the Middle East considerably drove up oil prices in April 2011, energy prices rose by less than 6% year-on-year for the first time since autumn 2010. The core rate, which excludes energy and food prices, comes in at 1.3%.
The rate of inflation is likely to remain above 2% in the next months. Overall, we expect consumer prices to rise by 2.2% this year. Growing capacity utilisation and the resultant, higher wage settlements increase the risk that consumer prices will continue to rise by more than 2% year-on-year in the medium term. As the ECB is unlikely to respond to these risks in Germany in view of the peripherals’ problems, inflation will probably be higher in the long run than during the past decade.
The higher global inflation also means we are witnessing the last leg of the bond market parabolic run. This is the sucker wave as Bunds crash 142 and EU Schatz are at all highs. They may keep running but the next drop below 135 for Bunds will be fatal. The long picture for bonds look bleak the least to say but having said that there may be a few more days/weeks to run for bonds before the whole sovereign pyramid comes crashing down. You have been warned.
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