German jobless numbers dropped -17k in December, much more than anticipated and with the November decline also revised to -6k from -5k, which confirms that the improvement on the labour market continued at the end of 2016. The jobless rate remained at a record low of 6.0%, with much of the remaining gap due to structural issues and a mismatch of skills on the demand and supply side, which highlights the need for structural reforms and changes to the education system even as the numbers look good. With headline inflation picking up as base effects fall out of the equation wage demands are also set to rise this year, which leaves German inflation subject to upside risks going ahead.
German state inflation numbers higher than expected. First CPI numbers from German states came in higher than anticipated, with monthly rates ranging from 0.7% to 0.9% and annual rates jumping between 0.7% points and 1.1% points. One major state is still missing, but the data already suggests that the pan German rate, released at 13:00GMT will come in higher than the 1.4% y/y expected, which also leaves an upside risks to the HICP rate, which was expected to jump to 1.3% from 0.7% y/y. The French reading earlier this morning came in a tad below expectations, but still saw the HICP rate rising to 0.8% y/y from 07% y/y and the Spanish number last Friday surprised on the upside with a jump to 1.4% y/y from 0.5% y/y, so that the overall Eurozone number is set to rise sharply higher, largely on base effects. The 10-year Bund contract headed south on the German numbers, but the ECB already anticipated an uptick in inflation and the data doesn’t change the policy outlook after Draghi confirmed asset purchases through to the end of the year at least.
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