31 March 2023
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Headline inflation slows in Germany and Spain but core remains high

By Daniel Richards

Germany’s preliminary CPI release slowed an easing in inflation pressures with the headline index slowing to 7.8% y/y in March from 9.3% in February. The monthly gain was still high at 1.1% and the reading was slightly higher than the market had been expecting. Core inflation will only be released with the final CPI report next month, but analysts expect Germany’s core inflation has likely peaked but will remain elevated for some time. Spanish headline inflation dropped sharply to 3.1% y/y from 6.0% on the back of much lower energy inflation. However, core inflation was stubbornly high at 7.5% y/y (7.6% in February) underscoring the challenge facing the ECB.

US GDP for Q4 2022 was revised slightly lower in the third reading to 2.6% q/q annualized, with personal consumption growth revised down to 1.0% from 1.4% previously. However, core PCE inflation was revised slightly higher to 4.4% from 4.3% previously. Separately, gross domestic income declined -1.1% in Q4 after rising 2.8% in Q3. Corporate profits also fell in the fourth quarter by the most in two years, suggesting that the economy may have been weaker in the final quarter of 2022 than the headline GDP data reflects.  

Inflation in Japan came in slightly higher than expected in February at 3.3% y/y with core inflation accelerating to 3.4% y/y from 3.2% in January. Retail sales growth improved to 6.6% y/y in February and industrial production is also recovering, down just -0.6% y/y against forecasts for a -2.4% decline. However, unemployment rose to 2.6% last month from 2.4% in January.

After having held at its previous meeting, the Central Bank of Egypt hiked its benchmark interest rates by 200bps yesterday, taking the overnight deposit rate to 18.25% and the overnight lending rate to 19.25%. A sizeable hike was widely anticipated as inflation has continued to accelerate in recent months, hitting 31.9% y/y in February, with core inflation at 40.3%. This was attributed to Ramadan, the depreciation of the EGP, domestic supply chain disruptions, and demand side pressures domestically, and the bank judged that ‘achieving a tight monetary stance is a necessary condition to attain the CBE’s upcoming inflation targets of 7 percent (± 2 percentage points) on average by 2024 Q4.’ The CBE’s communique also stated that real GDP growth stood at 3.9% y/y in Q4 2022, down from 4.4% in the previous quarter. The central bank noted that tourism and agriculture had been strong performers. Unemployment was at 7.2%, down from 7.4%.

The unemployment rate of Saudi nationals fell to 8% in Q4 2022 from 9.9% in Q3. Overall unemployment also fell to 4.8% in the final quarter of last year, while the unemployment rate for Saudi women fell to 15.4% from 20.5% in Q3. Strong economic growth and hiring by both government and the private sector contributed to the decline in unemployment in the kingdom.

Today’s Economic Data and Events

  • 10:00 UK GDP (4Q Final) forecast 0.4% y/y
  • 11:55 Germany unemployment (Mar) forecast 5.5%
  • 13:00 Eurozone CPI (Mar prelim) forecast 1.1% m/m and 7.1% y/y
  • 16:30 US personal income and spending (Feb) forecast 0.2% and 0.3% respectively.
  • 16:30 US core PCE deflator (Feb) forecast 4.7% y/y
  • 18:00 U. of Michigan consumer sentiment (Mar, final) forecast 63.3

Fixed Income

  • US Treasuries had another choppy day of trading without any clear fundamental push for the market to trade one way or another. Yields on the 2yr UST fluctuated between 4.03% to 4.15% intraday, ultimately closing the day up 2bps at 4.1195%. the 10yr UST yield closed slightly lower, down about 2bps at 3.5488%.
  • European bond markets traded cheaper overnight after inflation data from Germany showed that price growth was slowing, but not as quickly as the market had been expecting. Yields on 10yr bunds added about 5bps to 2.365% while gilt yields also pushed higher, settling at 3.512%, up about 5bps.  


  • The dollar traded lower in a broadly risk on day with all major peers gaining ground on the green back. EURUSD added about 0.6% to settle at 1.0905 while GBPUSD rose by 0.6% to close the day at 1.2386. USDJPY moved in favour of the yen, down about 0.1% to 132.70.
  • Commodity currencies showed strength as well with USDCAD extending its recent moves in favour of the loonie, down by 0.3% overnight to 1.3523. AUDUSD added 0.4% to 0.6712 while NZDUSD gained 0.6% to 0.6264.


  • US equity indices rose yesterday as the end of the quarter approached, even as there was commentary from Fed officials around the need to hike rates further. The Dow Jones, the S&P 500, and the NASDAQ added 0.4%, 0.6%, and 0.7% respectively.
  • There was similar optimism in Europe yesterday, bolstered by encouraging inflation prints. The composite STOXX 600 closed up 1.0% as the FTSE 100 added 0.7%, the CAC 1.1% and the DAX 1.3%.
  • Locally, the DRM added 0.7% and the ADX 0.2%. Saudi Arabia’s Tadawul gained 0.8% and Egypt’s EGX 30 closed flat.


  • Oil prices moved higher overnight with Brent up by 1.3% to USD 79.27/b and WTI added 1.9% to USD 74.37/b. The interruption of supplies from the KRG to a port in Turkey will help to keep a floor under prices in the near term as some output is being shut in due to the lack of pipeline availability. 



Written By

Daniel Richards Senior Economist

Edward Bell Head of Market Economics

Khatija Haque Head of Research & Chief Economist

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