FRANKFURT, Aug 31 — German consumer prices were flat in August, official data said today, a month after inflation turned negative for the first time since 2016.
Inflation was 0 per cent in August, after falling 0.1 per cent in July, with both figures still well below the 0.9 per cent rise in June, as the country continues to reel from the effects of the coronavirus pandemic.
Federal statistics agency Destatis said it was due in part to Germany’s cutting of VAT in July to spur spending. The tax reduction is set to last until the end of the year.
The August reading, based on preliminary data, was slightly above analysts’ predictions of a 0.1 per cent fall, according to a survey by FactSet.
Compared with the previous month, consumer prices fell 0.1 per cent, according to Destatis.
Uwe Burkert, chief economist at LBBW bank, said inflation wouldn’t pick up noticeably until the start of 2021.
“As expected, not much has happened in August as regards German inflation. After the slide in July caused by the reduction in VAT, inflation is now hovering around zero and this is likely to remain so for the time being in the coming months,” he said.
The stagnating prices in Europe’s largest economy will continue to raise the spectre of eurozone deflation and are likely to cause some anxiety at the European Central Bank.
The numbers might drag down eurozone inflation data, which is to be released on Tuesday, and hinder any chance of prices recovering towards the ECB’s target of close to, but below, two percent across the currency bloc.
“There had been speculation as to whether the current (coronavirus) crisis would be deflationary or inflationary... Today’s German inflation data suggest that for the time being the deflationary threat is clearly more pressing than any inflationary one,” said ING economist Carsten Brzeski.
In response to the devastating economic consequences of the pandemic, the ECB unveiled an emergency €1.35 trillion (RM6.72 trillion) bond-buying programme to keep credit flowing to the continent’s businesses.
The German economy shrank by a record 10.1 per cent in the second quarter as coronavirus lockdowns took their toll, but many say a recovery is well on its way.
The country predicts a fall in GDP of more than six per cent for 2020 as a whole.
According to the ECB’s preferred yardstick, known as the Harmonised Index of Consumer Prices (HICP), German inflation fell 0.1 per cent year-on-year.
In a month-on-month comparison, HICP inflation declined 0.2 per cent. — AFP
