Consumer prices provisionally fell 0.7 percent on the month at the start of 2018. Prices are seasonally soft in January but the latest decline was surprisingly sharp and steep enough to shade the annual inflation rate from 1.7 percent to 1.6 percent, equalling it lowest reading since last May.
The flash HICP largely followed suit with a 1.0 percent monthly drop that reduced its yearly rate from 1.6 percent to 1.4 percent.
The main negative impact on the change in the headline annual rate came from energy, where inflation slipped 0.4 percentage points to 0.9 percent, and goods, which saw a 0.3 percentage point slide to 1.5 percent. This left food (3.1 percent after 3.0 percent) to provide the only boost as services (1.6 percent) as well as rent, excluding utilities (1.7 percent) were only unchanged
Today's German results make for additional downside risk to tomorrow's flash Eurozone HICP report. Financial markets were already looking for a slightly softer rate than in December; this view will now have been reinforced. There is also less chance that the core rates will climb higher too.