German inflation slows, boosting case for ECB action

GMT 15:28 2015 Monday ,05 January

Arab Today, arab today German inflation slows, boosting case for ECB action

Destatis calculated that German inflation
Berlin - AFP

 Inflation in Germany, Europe's biggest economy, hit a five-year low in December, data showed Monday, turning up the heat on the European Central Bank to do more to ward off the threat of deflation, analysts said.
In a preliminary flash estimate, the federal statistics office Destatis calculated that German inflation stood at just 0.2 percent year-on-year last month, down from 0.6 percent in November.
The last time inflation in Germany was lower than 0.2 percent was in October 2009.
Taking 2014 as a whole, inflation stood at an annual average 0.9 percent, Destatis calculated.  
Using the Harmonised Index of Consumer Prices (HICP) -- the ECB's yardstick -- inflation in Germany was even lower at 0.1 percent in December, way under the central bank's target of just below 2.0 percent.
The sharp slowdown in inflation in Europe's biggest economy will fuel fears that prices across the entire eurozone could begin falling and tip the region into deflation -- a sustained and widespread drop in prices that hampers economic activity and could lead to job losses.
While falling prices may sound good for consumers, deflation can trigger a vicious spiral in which businesses and households delay purchases, throttling demand and causing companies to lay off workers.
Such concerns already persuaded the ECB to cut interest rates to a new all-time low and roll out other anti-deflation measures such as a series of asset purchase programmes to inject cash into the economy.
But if euro area-wide inflation turns negative, then the ECB may have to resort to even more radical measures, such as so-called quantitative easing (QE), the large-scale purchase of sovereign bonds, analysts said.
"For the ECB, such low inflation rates in Germany should make it easier to argue the case of further monetary easing," said Berenberg Bank economist Christian Schulz.


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