|

Germany annual CPI inflation holds steady at 2% in July vs. 1.9% expected

  • Annual inflation in Germany remained unchanged at 2% in July.
  • EUR/USD stays in positive territory near 1.1450 in the early American session.

Inflation in Germany, as measured by the change in the Consumer Price Index (CPI), held steady at 2% in July, Destatis' flash estimate showed on Thursday. This reading came in above the market expectation of 1.9%.

On a monthly basis, the CPI rose by 0.3% after staying unchanged in June.

The Harmonized Index of Consumer Prices in Germany, the European Central Bank's preferred gauge of inflation, rose 1.8% on a yearly basis after increasing 2% in June. This reading came in below analysts' estimate of 1.9%.

Market reaction

The EUR/USD pair showed no immediate reaction to these figures and was last seen trading at 1.1450, gaining 0.4% on the day.

Inflation FAQs

Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.

The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.

Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.

Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.

Author

Eren Sengezer

As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.

More from Eren Sengezer
Share:

Editor's Picks

EUR/USD looks well bid above 1.1600

EUR/USD extends its recovery and climbs back above the 1.1600 mark in quite an auspicious start to the week. Improved risk appetite following the US-Iran agreement to reopen the Strait of Hormuz continues to weigh on the US Dollar, lending support to the risk complex. Looking ahead, investors are likely to remain on the sidelines ahead of Wednesday's FOMC meeting.

GBP/USD climbs to multi-day highs around 1.3460

GBP/USD remains comfortably in positive territory north of 1.3400 the figure on Monday. Cable continues to draw support from an improvement in market sentiment after reports that the US and Iran have reached a framework agreement aimed at ending the conflict and reopening the Strait of Hormuz.

Gold extends the recovery, targets $4,400

Gold rallies on Monday and climbs well above the $4,300 mark per troy ounce. The precious metal benefits from renewed selling pressure on the Greenback as investors reassess the implications of the US-Iran agreement to end hostilities and reopen the Strait of Hormuz. Market participants now turn their attention to Wednesday's FOMC gathering.


Bitcoin consolidates gains, Ethereum defends support, XRP nears breakout trigger


Bitcoin, Ethereum and Ripple begin the week on a constructive note as the top three cryptocurrencies attempt to extend rebounds after recovering nearly 4%, 2% and 2.6%, respectively. BTC steadies around $65,600, ETH continues to hold firmly above the key $1,700 support, while XRP nears the upper boundary of the falling channel pattern. 

President Trump announced that the deal with Iran is complete
President Trump announced that the deal with Iran is complete and he authorises the toll-free opening of the Strait of Hormuz and removal of the US Naval blockade. While the agreement is made, it is expected to be signed on Friday to take effect. The Forex market looks stable and could react slowly to the positivity around the news as Iran still expresses its mistrust on the US.
4.2% headline, 0.2% core: Why the Fed's next hike may be targeting the wrong problem

May's CPI put headline inflation at 4.2% on the year, up from 3.8% in April and the hottest reading since April 2023, while core prices rose just 0.2% on the month, undershooting the 0.3% consensus and halving April's pace.