EUROPEAN INFLATION: German State Details Show Lower Services Inflation [1/2]

Within the details of the German state level January CPI inflation data, there appears to have been rather broad disinflation albeit with some exceptions. While the expected sequential energy uptick materialized, both services and goods overall see lower yearly rates.

• We project overall services inflation at 3.8-3.9% Y/Y after 4.1% Y/Y in December on the back of a broadly flat sequential print (see below chart). That said, whilst this is a softer January M/M than in 2024, it's similar to those seen in 2021 and 2023 and is still clearly robust compared to typically sizeable declines seen historically.
• Looking at categories with heavy services weights, we see Y/Y moderation to 1.9% for recreation & culture (vs 2.3% Dec), 4.7% education (5.0% Dec), 4.6-4.7% restaurants (5.9% Dec), with exceptions being accelerations in healthcare at 3.4% (2.8% Dec), and communication at -1.1/-1.2% (-1.7% Dec).
• Limited data point to a sharp slowdown for insurance services, which President Lagarde highlighted being under particular scrutiny for a January reset of prices as one the inflation "latecomers". Saxony-Anhalt insurance prices increased "only" 10.4% Y/Y and 0.7% M/M in January - this compares to a 17.2% Y/Y increase in December 2024 and a 6.9% M/M jump in January 2024. Bear in mind though that Saxony-Anhalt only accounts for around 2.4% of the overall basket in Germany.