Mild weather drives inflation fall in Germany

Germany's consumer price index has missed expectations in October, coming in at -0.2 per cent, after expectations it would remain unchanged at 0.0 per cent. Year-on-year, the index rose 1.2 per cent, again missing expectations of a 1.4 per cent increase.

Berenberg's Christian Schulz says that relatively mild weather at the start of the heating season was the "key driver" of the October fall in German inflation, "since more households will be switching on their heating soon, this fall may prove transitory."

Despite the fall, Germany's inflation rate remains at the higher end of rates in the Eurozone. Spain's EU-harmonised inflation rate for October was of 0.1 per cent year-on-year, whilst Greece’s latest figure was -1.0 per cent. Overall Eurozone inflation is likely to decline further from September's 1.1 per cent, says Schulz.

He comments: "although much of the current decline is driven by temporary factors, it allows the European Central Bank (ECB) to keep its dovish bias firmly in place. With the economy gradually emerging from recession, inflation rates should start stabilising and then rising towards target again. But that is unlikely to occur before 2015, allowing the ECB to support the economy with the present very accommodative policy for a long time."