German inflation rate falls slightly to 2 pct in July

2018-08-15 10:27

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The inflation rate in Germany fell again slightly in July, official figures published on Tuesday by the Federal Statistical Office (Destatis) showed.

According to Destatis, consumer prices were 2.0 percent higher in July compared to the same month last year. By contrast, in June and May, the annualized inflation rate was 2.1 percent and 2.2 percent respectively.

On a monthly basis, prices in Germany were 0.3 percent higher in July than in June. The findings were all in line with preliminary estimates released earlier by the government agency.

July was the third month in a row that national inflation, as measured by the official consumer price index, has come in at or above 2 percent. The European Central Bank (ECB) sets a target inflation rate of close to, but below, 2 percent for members of the eurozone.

German inflation in July was largely driven by a 6.6-percent increase in average energy compared to the same period last year. Heating oil was 28.5 percent more expensive, while fuel prices rose by 12 percent. This is on top of a rise in average energy costs in June when consumers witnessed a steep 6.4-percent spike.

Food prices continued to increase in July at 2.6 percent. Nevertheless, the figure still marked a decline compared to the previous three months when the annual rate of price growth for the category was consistently above 3 percent.

In contrast to energy and food, electronics (minus 5.5 percent) and information processing goods (minus 4.2 percent) became cheaper during the period.

Excluding energy, overall inflation in July would have been measured at 1.6 percent.

The cost of services in Germany increased at a slower pace than for goods at 1.5 percent. While rental prices were up by 1.6 percent, the price of airfare fell steeply by 6.9 percent.
Speaking to Xinhua on Tuesday, Reint E. Gropp, president of the Halle Institute for Economic Research (IWH), said the German inflation rate in July was likely to inspire renewed calls for the ECB to unwind its current bond purchasing program earlier than planned.

"Inflation rates in Germany and the euro area are now more or less right at the ECB target of close, but below, 2 percent. This seems to call for an acceleration of tightening monetary policy by the ECB," Gropp said.

However, the IWH president warned that eurozone growth could still too prove fragile to warrant such a hawkish stance by the Frankfurt-based institution.
"Global risks, including the possibility of a hard Brexit and trade wars between the major economic areas, have, if anything, increased since last month," he noted.

Additionally, Gropp pointed to the recent collapse in the value of the Turkish lira as a significant economic risk factor for Europe. "If Turkey continues on its path, where it ignores advice from economists and refuses help from the International Monetary Fund, contagion to other emerging markets and perhaps to some euro area banks is likely, which overall should have a dampening effect on growth and inflation," Gropp explained.

Gropp also stressed on Tuesday that inflation in Germany remained far below the ECB target once higher energy costs were excluded from the measurements. Combined with relatively low wage growth and high unemployment throughout the wider eurozone, the IWH president said he did not "expect a change in the monetary policy stance of the ECB at its next meeting."
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