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A preliminary inflation reading from five German states suggests that energy costs are leading consumer prices higher. According to the statistical office in Munich, the states of Bavaria, North Rhine-Westphalia, Hesse, Brandenburg, and Saxony  saw inflation rise to the range of +0.7% – 1.0% in December Y/Y from +0.2% – 0.4% in November versus the year earlier.

Petroleum and fuel recorded low double digit gains on an annual basis across most states and heating oil inflated just shy of +10%, while food inflation fell ~3%.

As a gauge for Eurozone inflation (at +0.5% in November Y/Y), German CPI does not appear an intermediate term threat in 2010, despite the pressures that rising energy prices will put on consumers and producers. However, unemployment fears in Germany, despite holding at the 8.2% level over the last months, remain a particular concern, which has been confirmed by surveys showing deterioration in consumer and business confidence and a slowing in the services and manufacturing PMI.

Interestingly, the DAX is performing in line with the S&P 500 in year-to-date performance, up 24%. The DAX overcame the 6000 line on Monday, not achieved since September 2008. We’re currently not invested in Europe in our model portfolio and very mindful of fundamental and structural issues facing Europe’s weaker and leveraged economies.

Matthew Hedrick


Energy Costs Stoke Mild Inflation - gecpi