EZ – Inflation should remain rather stable in September

DE-parliamentary elections – union parties should remain strongest force

EZ – Inflation expected at stable level of around + 1.5% y/y

Next week (September 29), the first flash estimate of September inflation for the euro area will be released. In August, headline inflation slightly accelerated to +1.5% y/y from the previous +1.3% y/y. This increase was mainly driven by the energy component, which rose from +2.2% y/y to +4.0% y/y. On the country level, mixed development with regard to core inflation is visible. Based on a 12-month average, a clear uptrend can be seen in Spain. In Italy and Germany, a moderate positive tendency, in line with the economic recovery, can also be observed. In France, core inflation remains at the unchanged low level of around +0.6 % y/y.

Due to the expected moderate base effects from energy prices, we forecast stable development of headline inflation in September of between +1.4% y/y and +1.5% y/y. Core inflation should remain in the range of between +1.0% y/y and +1.2% y/y. Based on the current economic upswing, we expect core inflation to stabilize at around +1.2% y/y until year-end. For FY17, we continue to forecast an average headline inflation level of +1.5% y/y.

Germany – Union parties should remain strongest force

On September 24, Germany will elect a new Parliament. Germany is now governed by a grand coalition consisting of union parties (CDU/CSU) and social democrats under Chancellor Merkel. Despite an expected loss of votes, the union parties should remain the strongest political power in Germany with approx. 36% of the votes (based on current surveys). The strongest gains are predicted for the right-wing populist AfD (around 11% of the votes) as well as the liberal FDP (approx. 10% of the votes). In light of the expected comfortable majority for the union parties, there is no reason to expect a fundamental political transition in Germany after the elections. The outstanding issue is who will be the union parties' junior partner. Either the grand coalition with the social democrats goes into extra time, or the union parties acquire the necessary parliamentary majority via cooperation with FDP and/or the Green Party.

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