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May 07 2015

Evaporating Deflation Fears in Germany

With Eurozone inflation picking up, ECRI has just updated its German Future Inflation Gauge (GEFIG), providing unique insight into the outlook for inflation in Europe’s largest economy.    

German inflation was virtually unchanged at 0.3% year-over-year in April, marking its third consecutive month in positive territory and easing broader concerns of deflation in the Eurozone. This is in stark contrast to concerns earlier in the year, when some had suggested that Germany “may not see inflation again before the year is out.” Indeed, the seismic shift in inflation expectations has spurred a bond sell-off, with yields on 10-year German Bunds spiking up to a seven-month high this week after dropping to a record low in mid-April.

In our latest GEFIG update, we shed light on the future trajectory of German inflation, clarifying whether the recent shift in inflation expectations is warranted.

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