German Consumer Prices Post First Annual Decline in 22 Years.

Just a month ago in June the ECB officials were confidently BSing everyone that there was not threat of deflation in Eurozone while the credit was collapsing all around them and the CPI was edging lower. Here we are in July and CPI is now drops at fastest pace in Germany, the biggest Eurozone economy. When will ECB admit the truth?

German Consumer Prices Post First Annual Decline in 22 Years.

July 29 (Bloomberg) — Consumer prices in Germany, Europe’s largest economy, posted their first annual decline in more than 22 years in July after energy and food costs dropped and the recession crimped spending.

Prices, calculated using a harmonized European Union method, dropped 0.6 percent from a year earlier, the Federal Statistics Office in Wiesbaden said today. That was more than the 0.4 percent decline forecast by economists in a Bloomberg News survey. On a non-harmonized basis, prices also retreated 0.6 percent, the first annual decrease since March 1987.Crude oil prices have fallen by half over the past 12 months, pushing down inflation just as companies cut jobs and investment to weather the deepest recession since World War II. With commodity markets recovering and recent reports suggesting the worst of the economic slump may have passed, Germany may avoid deflation, a prolonged period of falling prices.

Today’s inflation number is “a lot lower than we had expected, but it’s a temporary dip,” said Aline Schuiling, an economist at Fortis Bank NV in Amsterdam. “While we will have to revise down our forecast for European inflation, prices will rise across the board again now that energy prices are climbing and the economy looks set to recover.”

Before the German report, economists forecast euro-area consumer prices would drop 0.4 percent this month from a year ago. That report is due on July 31.

ECB Measures

The price of oil has doubled since reaching $33.98 a barrel on Feb. 12. The European Central Bank, which has cut its benchmark interest rate to a record low of 1 percent, is also lending banks as much cash as they want and buying covered bonds to help ease credit constraints and revive economic growth.

ECB President Jean-Claude Trichet said on July 2 he expects “the current episode of extremely low or negative inflation rates to be short-lived.” He added the central bank’s measures have also protected the economy of the 16 euro nations from the “shorter-term threats of deflation.”

In the German state of Saxony, the price of heating oil dropped 44 percent in July from a year earlier and fuel costs fell 20 percent. Excluding energy and seasonal foods, inflation would have accelerated to 1 percent, the state’s statistics office said today.

Metro AG, Germany’s largest retailer, said on July 17 it plans to cut prices on 5,000 items at its cash and carry wholesale unit to attract customers.

While the government forecasts the German economy will shrink 6 percent this year, there are signs the recession may be easing. Industrial output jumped in May and business confidence rose for a fourth month in July.

The coalition government led by Chancellor Angela Merkel, who faces national elections in September, is spending about 85 billion euros ($118 billion) to stimulate growth, including tax breaks and investment in infrastructure.


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