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German December flash HICP data is scheduled to follow France tomorrow, with consensus sitting at 2.2% Y/Y, down from November's 2.6%, with analyst estimates ranging from 2.1-2.4%.

• The national-level reading at 13:00 GMT / 14:00 CET will be preceded by state-level data in the morning, but some states only release on Wednesday due to a local bank holiday. This means that any inference on the national data will be based on only 55.7 of the national basket (as opposed to a usual ~89.1%).

Analyst views:

• Barclays see headline at 2.41% Y/Y (2.92% core) amid a 10.8% M/M package holidays print as well as 0.1% M/M in accommodation inflation. Barclays see a 25.0% M/M airfares print in Germany in December.
• Goldman Sachs sees headline at 2.2% Y/Y: "Core inflation to decline to 2.8%yoy from 3.0%yoy, driven by a decline in the year-over-year rate of both goods and services inflation. Both package holidays and airfares have been firmer than we anticipated over the recent months. We thus see upside risk potential to our 8%mom nsa and 11%mom nsa forecasts for the two components, especially for the latter. We expect core goods inflation to accelerate somewhat in sequential seasonally adjusted terms to 0.18%mom in December, still notably weaker than last December. Of the non-core components, we expect energy inflation to decline to -1.1%yoy from -0.1%yoy in November, and look for processed and unprocessed food inflation to fall to 1.5%yoy and 1.8%yoy, respectively.”
• Morgan Stanley see headline at 2.1% Y/Y on a broad-based decline: lower fuel prices, soft food momentum, core goods base effects, and payback in volatile services.

The December flash PMI meanwhile noted:

• “Strong competition for new work led to another modest decrease in average manufacturing output prices in December. However, due to a faster rise in prices charged by service providers, the overall rate of output price inflation ticked up from
  November’s four-month low."

The Bundesbank highlights in December bi-annual projection which was part of the ECB's quarterly projections last month:

• “The inflation rate will continue to decline during the forecast period, but at a slower pace than previously expected. One factor contributing to this is that strong wage growth is only slowing down gradually.”
• “Real wages rose surprisingly strongly [...] contributed to the fact that HICP inflation rates were also significantly higher than the June forecast”
• “The inflation rate is falling more slowly than previously expected and will reach around 2% in 2027 and 2028. The HICP year-on-year rate is expected to gradually decline from 2.3% in the current year to 2.2% in 2026. At the same time, the core rate will fall from 2.8% to 2.4%. In 2027, it will fall further to 2.1%, as labour cost increases ease and weak aggregate demand continues to have an impact.”
• “In the case of food, wage growth, which remains strong, will contribute to noticeable price increases in the forecast period. The decline in energy prices will slow down by 2027, mainly due to the assumed easing of downward pressure from energy commodity prices. The transition from the national CO₂ pricing system to the EU ETS II in 2028 will be accompanied by a more pronounced decline in energy prices in Germany.”

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