German consumer prices post annual decline for first time in 22 years
Consumer prices in Germany posted their first annual decline in more than 22 years in July and wholesale prices plunged after energy costs fell and the worst recession since World War II curbed spending.
Consumer prices, calculated using a harmonised European Union method, fell 0.7pc from a year earlier, more than initially estimated, the Federal Statistics Office in Wiesbaden said yesterday. A separate report showed wholesale prices dropped 10.6pc in July from a year ago, the biggest decline since the data was first compiled in 1968.
Crude oil prices have decreased by more than half over the past year, exacerbating downward pressure on inflation as the global economic slump cuts exports and companies fire workers. While the European Central Bank (ECB) says the euro-area economy won't return to quarterly growth until next year, it has downplayed the threat of deflation in the region.
The statistics office previously reported that German harmonised consumer prices fell 0.6pc in July from a year earlier. Prices fell 0.1pc from June, it said.
On a non-harmonised basis, consumer prices declined 0.5pc in July, the first annual decrease since March 1987.
The government forecasts the German economy, Europe's largest, will shrink 6pc this year. Output in the metal industry may fall by as much as 20pc, Martin Kannegiesser, head of the Gesamtmetall employers' group, said.
Pressure
"There's a growing notion that, over the next few months as the oil price effect wanes, this margin of spare capacity will continue to exert downward pressure on prices," said Colin Ellis, economist at Daiwa Securities SMBC Europe Ltd in London.
ECB President Jean-Claude Trichet said the central bank's inflation expectations "are in line with avoiding those risks and we will continue to be very alert in this respect".
Euro-area consumer prices fell 0.6pc in July from a year earlier, the most since data were first compiled in 1996.
The ECB, which aims to keep inflation in the 16-nation euro region just below 2pc, last week left its benchmark interest rate at a record low of 1pc. It is also lending banks as much cash as they want and buying €60bn of covered bonds to get credit flowing again.
Policy makers must balance the deflationary pressures posed by excess capacity and falling annual energy prices with the inflation risks linked to stimulus packages across Europe.
Otmar Issing, former ECB chief economist, warned that inflation will pick up as soon as the financial crisis has passed unless economic stimulus measures are removed promptly. (Bloomberg)
