Underlying inflationary pressures remain uneven

Despite signs that core inflation in Germany picked up in November, euro-zone core inflation remained unchanged at 0.9%. This suggests that despite strong economic growth, underlying inflationary pressures in the rest of the euro-zone actually softened last month. The absence of price pressures outside of Germany is best explained by the large degree of labour market slack in those economies, which is holding down wages. Indeed, the most recent data show that in Q2 annual hourly labour cost growth was just 0.4% in Spain, 0.9% in Italy and 1.4% in France. By contrast, it was 2.3% in Germany.