State inflation data suggest German CPI will top 3% again in September

The newest German state CPI data are giving a fairly clear signal ahead of the national report due later today.

The following state readings were published around the same time:

• Bavaria: September CPI +3.2% y/y versus +2.9% y/y previously
• Saxony: September CPI +3.3% y/y versus +2.9% y/y previously
• North Rhine Westphalia: September CPI +3.3% y/y versus +2.9% y/y previously
• Baden Wuerttemberg: September CPI +2.9% y/y versus +2.6% y/y previously

The clear conclusion is that the pickup is not confined to one or two states. All four numbers rose by at least 0.3 percentage points from August, and Saxony and North Rhine Westphalia both registered inflation at 3.3%.

That is a fairly strong indication that the national inflation rate looks set to accelerate too, and the latest figures make it look more and more likely that headline CPI will move back above 3%.

There is a caveat, though: state readings are not an exact match for the national figure, so the preliminary report released later can still deviate. Historically, though, they have been a useful gauge, and today's figures arguably point to some upside risk to the 3.1% consensus, with a national CPI print near 3.2% looking quite plausible.

For the ECB, this keeps attention firmly on the renewed pickup in price pressures. A single month's data will not settle the policy debate on its own, but another acceleration in German inflation would make it harder for policymakers to look beyond the recent rebound in price pressures.

Later today, the national CPI report is the next important part of the puzzle. Alongside the headline figure, core inflation deserves close attention to see whether the recent pickup in price pressures is starting to spread beyond energy.