*** PDF version incl. charts is attached ***

German inflation falls more strongly than expected

Nov 01		Actual	UBSW fc	Market	Previous
CPI -  mom%		-0.2		0.0		0.0		-0.3
CPI ? yoy%		1.7		1.9		1.9		2.0

n German CPI inflation dropped from 2.0% in October to 1.7% in the 
month to mid-November. Thi swas 0.2%pts lower than expected. The 
outcome is a consequence of sharply falling energy and food prices. 
Core inflation will have remained unchanged. Pipeline inflation 
indicators released yesterday underpinned the favourable trend.

n In the absence of further oil price decline, inflation is likely to 
rise slightly next month. Further significant declines are expected 
from February 2002, taking German inflation below 1% by the middle of 
the year. If this is only partly mirrored in other euro area economies, 
the ECB will have leeway to cut rates further next year as we expect.


Food and energy prices were the main forces behind the inflation 
decline in November. From the state data, we estimate that food price 
inflation will have fallen from 6.6% to about 5.5% yoy. Household 
energy prices dropped by about 1.6% mom reflecting a substantial 
heating oil price decline and petrol prices fell between 0.8% and 3.4% 
in the reporting states. Core inflation will barely have changed from 
last month?s 1.8%.

The favourable German inflation picture was preceded by much larger 
than expected declines in October produce r and import prices reported 
yesterday. Altogether, the data of the last two days underpin our 
forecast that both headline and core inflation will fall substantially 
next year. Hence, our forecast of further ECB easing in 2002 Q1 remains 
firmly in place.

_______________________________________________
Holger Fahrinkrug
Senior Economist
UBS Warburg AG
Stephanstra?e 14-16, D-60313 Frankfurt, Germany
Tel. +49 69 1369 8280
Fax +49 69 1369 8221
Email: holger.fahrinkrug@ubsw.com

 


Visit our website at http://www.ubswarburg.com

This message contains confidential information and is intended only 
for the individual named.  If you are not the named addressee you 
should not disseminate, distribute or copy this e-mail.  Please 
notify the sender immediately by e-mail if you have received this 
e-mail by mistake and delete this e-mail from your system.

E-mail transmission cannot be guaranteed to be secure or error-free 
as information could be intercepted, corrupted, lost, destroyed, 
arrive late or incomplete, or contain viruses.  The sender therefore 
does not accept liability for any errors or omissions in the contents 
of this message which arise as a result of e-mail transmission.  If 
verification is required please request a hard-copy version.  This 
message is provided for informational purposes and should not be 
construed as a solicitation or offer to buy or sell any securities or 
related financial instruments.