Preliminary estimates of Germany’s Consumer Price Index are expected to show that prices rose 0.1% in April to bring the annual inflation rate to 0.8% from 0.5% in the previous month. It would be premature to say the rebound owes to a pickup in economic activity, and even more so premature to suppose that prices will continue to rise from here. Currency depreciation may account for the increase, making imported goods comparatively more expensive for German consumers. Indeed, the Euro has shed 2.1% on average against the currencies of Germany’s top non-EZ import partners (China, UK, US). If the economy is indeed showing some life, this likely owes to record low interest rates and an 82 billion euro government stimulus package. The ability of these measures to spur sustainable growth seems questionable at best, however: the world’s fourth-largest economy could afford a far greater fiscal effort considering the kind of spending being done by the US, China and Japan; on the monetary front, Germany’s experience with hyperinflation in the 1920s have made it thoroughly averse to anything that even smells like printing money, putting its representatives to the European Central Bank at the head of the faction arguing against quantitative easing. This half-hearted approach means that private demand will likely be slow to step in to pick up the baton after the government’s boost is exhausted, keeping unemployment at elevated levels and holding back spending. Indeed, the jobless rate is expected to reach above 9% by the end of this year.
