"In January, the consumer price index in Germany rose by 1.9%. This is the highest increase since mid-2013. In the meantime, consumer prices had fallen until slightly below zero %. This development was mainly caused by the decrease in energy prices. Especially the oil price had collapsed several times. Most recently, energy prices had dropped at the end of 2015 and the beginning of 2016. Therefore, much of the increase in the inflation rate compared to the previous year is due to base effects.
However, core inflation, that is the inflation rate excluding volatile prices such as food and energy, had been clearly positive for years. In 2016, it fluctuated between 0.7% and 1.3%. Now the core rate is reflected considerably in the overall index. Rents even have been rising by 1.6% lately.
The one-sided focus on the Harmonised Index of Consumer Prices (HICP) is very problematic. The European Central Bank's (ECB) mandate of price stability involves the obligation of taking into account all measures of inflation. Considerung the prices of all goods and services produced in Germany as measured by the GDP deflator, the inflation rate during the last three years amounted to 2%. Therefore, rising inflation rates can be expected in Germany. The development in the euro area was similar but weaker. The core rate has been fluctuating around 1% for a long time whereas the overall index rose by 1.1% in December.
Against this background, the additional quantitative easing with further bond purchases the ECB announced in December 2016 can hardly be justified. The ECB itself said that monetary policy should not react to energy prices. In this case, the quantitative easing measures in 2015 and 2016 should have been ruled out. The ECB should definitely alter its course and prepare the exit from quantitative easing. It is not helpful in this situation to define new criteria".
(see also: Reuters "German inflation hits 3-1/2 year high in January")