Falling prices may sound good for consumers

German inflation hits 4-year low, raising heat on ECB

GMT 10:08 2014 Monday ,02 June

Arab Today, arab today German inflation hits 4-year low, raising heat on ECB

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Inflation in Germany, Europe's biggest economy, slowed to its lowest rate in four years in May, data showed on Monday, turning up the heat on the European Central Bank to act.
According to preliminary data compiled by the federal statistics office Destatis, German inflation slowed to 0.9 percent last month, its lowest level since February 2010.
In April, the inflation rate had stood at 1.3 percent.
Inflation is currently unusually low across the 18-nation eurozone, fuelling concerns the region could be on the brink of deflation or a sustained and widespread drop in prices.
While falling prices may sound good for consumers, deflation is actually dangerous for the economy because it can trigger a vicious spiral where businesses and households delay purchases, throttling demand and causing companies to lay off workers.
Analysts said the slowdown will increase pressure on the ECB to cut rates at its monthly policy meeting this week and launch other measures to ease monetary conditions in the single currency area.
Using the Harmonised Index of Consumer Prices (HICP) -- the yardstick used by the ECB -- inflation in Germany slowed to just 0.6 percent in May from 1.1 percent in April.
The ECB defines price stability as annual inflation of just below 2.0 percent.
Preliminary German inflation data are calculated on the basis of cost-of-living statistics of six out of Germany's total 16 regional states.
Final data based on all 16 states are scheduled for publication on June 13.
Source: AFP

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