We’ll start by addressing the title of this month’s Ifo nugget. We note from our two main models for predicting demand driven price pressures that wage pressures are continuing to fade and last month’s uptick in the employment barometer has faded again and we are still looking at wages and salaries in the pre Covid range and the other side of the Summer. 

The same is likely true for Core CPI in Germany. Even though we saw a small uptick in price expectations ex. real estate, the trend is still pointing towards a continuation in disinflation into H2. Hence forget about a reacceleration in inflation from any other place than the supply side and especially energy prices (in Germany).    

Chart 1.a: Past this Summer we should see wages around pre Covid levels