Import price growth in Germany accelerated more than expected during the month of September at a rate of 0.6 percent led by petroleum product prices as oil rocketed higher. The news heightens the prospects that the European Central Bank will keep rates steady and maintain their hawkish bias.
While inflation seems to be largely isolated to energy related products (suggesting core pressures are relatively stable), the possibility that these costs will leak into other product groups is considerable. However, we’ve started to see investor sentiment suffer, as the German IFO survey of business confidence dropped to a 20-month low of 103.9, while the outlook figure slumped to a nearly two year low of 98.6. The rapid appreciation of the Euro, speculation that the ECB may hike, rocky financial market conditions, and oil at record highs has undoubtedly taken a toll on optimism. The question is: will it impact business and consumer spending? We have yet to see this occur, but with Europeans feeling leery of current and future conditions in the economy, the ECB will not want to exacerbate the mentality and trigger a more substantial slowdown.