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Date: Fri, 23 Nov 2001 04:51:30 -0800 (PST)
From: holger.fahrinkrug@ubsw.com
To: harora@ect.enron.com
Subject: FW: UBSW: German inflation falls more strongly than expected - with
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*** 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