German inflation figures released yesterday did not provide a clear signal for the ECB’s next rate decision. The ECB next meets on the 2nd February.

Headline annual consumer price inflation was down from 11.3% in November to 9.6% in December.

This reduction was largely driven by government gas price subsidies – with energy inflation falling from 38.7% in November to 24.4% in December.

Services inflation was up from 3.6% in November to 3.9% in December – which should concern the ECB.

While subsidies may act to reduce inflation expectations and higher wage demands, these subsidies could also act as a fiscal stimulus – so carry the risk of requiring additional monetary tightening.