EUROPEAN INFLATION: Broad-based Services Easing In German Final Feb HICP

Germany final February HICP inflation was 2.6 % Y/Y (vs 2.8% in Jan), two tenths below the flash release. We note that at the time of the flash prints, consensus expectations for German HICP was 2.7% Y/Y, so in effect the data has ex-post come in softer than expected. The monthly reading was revised a tenth lower on a rounded basis to 0.5% M/M. 

• Destatis doesn’t publish aggregate breakdowns of the HICP print (e.g. core, services, goods) in the flash or final releases (that will need to wait for the Eurostat update next week). However, looking at the component-level details, there was a broad-based easing of services components in February which will be encouraging to the ECB:
  • Hospital services eased to 6.5% Y/Y (vs 7.9% prior).
  • Transport services fell to 7.0% Y/Y (vs 8.2% prior), though the volatile international flights category will have contributed here (6.5% Y/Y vs 13.7% prior).
  • Communication dipped to -1.5% Y/Y (vs -1.2% prior).
  • Recreation and culture decelerated to 3.2% Y/Y (vs 4.4% prior) – not impacted by package holidays, which remained steady at 7.8% Y/Y.
  • Restaurants and hotels fell to 4.1% Y/Y (vs 4.4% prior), driven by catering services.
  • Insurance was 9.1% Y/Y (vs 9.4% in January and 15.7% in February).
• On the core goods side, clothing and footwear fell sharply to 0.4% Y/Y (vs 2.8% prior), while furnishing and household equipment was steady at -0.7% Y/Y. Medical equipment also eased.
• The proportion of HICP sub-components with annual inflation rates between 1-3% Y/Y ticked up to 21.8% (vs 21.5% prior).
• CPI inflation was in line with the flash readings at 2.3% Y/Y (2.29% unrounded vs 2.30% prior).  Core CPI (excluding energy and unprocessed foods) was 2.73% Y/Y (vs 2.92% prior; flash 2.6%), driven by a deceleration in services inflation to 3.76% Y/Y (vs 3.96% prior; flash 3.8%). Goods inflation was steady at 0.88% Y/Y (vs 0.89% prior; flash 0.9%). Within the non-core components, energy CPI fell to -1.62% Y/Y (vs -1.56% prior; flash -1.8%). Meanwhile, food inflation was 2.4% Y/Y (vs 0.8% prior; flash 2.4%).