Germany: Germany slips into deflation as crude presses down prices

Germany has become the new eurozone member national to succumb to deflation, with the initial fall in prices since autumn 2009, supporting the case for last week’s landmark quantitative easing package from the European Central Bank.
Germany’s Federal Statistics Office said yesterday it expected harmonised consumer prices, calculated to fit with the broader eurozone calculation, to decline 0.5 % in the year to January — a fall from a rise in costs of 0.1 % in the year to December.

The plunge was almost entirely due to the collapse in oil prices, with energy costs falling 9 % during the 12 months. The last time prices fell in the eurozone’s major economy was in September 2009 and the new dip all but confirms that deflation across the currency area worsened in January.
Analysts polled by Bloomberg expect figures to be released tomorrow by Eurostat, the European Commission’s statistics agency, to show prices fell 0.5 % in January.

With German prices falling at a faster pace than expected, the eurozone figure could undershoot forecasts. The German inflation figure “means expectations for eurozone inflation presently carry a decidedly downside risk”, said Jörg Krämer, chief economist at Commerzbank. “The drop in oil prices suggests that eurozone headline inflation should remain below the zero line until autumn.”

Prices dipped 0.2 % across the region in the year to December, falling in 12 out of 19 eurozone member states. Germany’s separate estimate of consumer prices showed a drop of 0.3 % from a year before.

The ECB, which aims for inflation below but close to 2 %, plans a €1.1tn quantitative easing package to tackle deflation.
The ECB and eurozone national central banks will buy €60bn of assets a month until September 2016 to counter a spiral of falling prices, weak credit and stagnant request.