Germany’s producer price inflation increases after six months of decline

After publication of disappointing consumption data in February, German economy shows signs of recovery in March, supported by an acceleration in March producer price index given at 1.90% on y/y basis (0.10% m/m) after a series of decrease during 6 months, suggesting an increase in demand from German consumer during the month. Along with an improving trade balance in February and stable inflation in March, the German economy is set to reinforce economic growth in 2018. Jointly backed by five statistical institutions, German economic forecasts are placed higher, as gross domestic product estimates are expected to accelerate at 2.20% in 2018 (initial estimates at 2%), thus supporting our optimistic view for the Euro region.

As soft economic data remain high for the month of April, with GfK consumer confidence and ZEW current conditions given at 10.90 and 87.90 (2 years averages at 10.30 and 75), we suspect the German economy to continue its acceleration, though at a slight lower pace compared to previous year.

Since EUR/USD currently trades at 1.2324 and remains neutral for the month of April, below the 1.24 threshold, we suspect the pair to continue to decrease until the end of the month, heading along the 1.2310 in the short-term.