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German Inflation Edges Higher in December

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German Inflation Edges Higher in December

Consumer inflation in Germany edged higher in December, a sign Europe’s largest economy is diverging from the rest of the Eurozone.

Germany’s Consumer Price Index rose 0.4 percent in December, compared to 0.2 percent the prior month, the federal statistics department reported today. Year-on-year, consumer inflation rose 1.4 percent, matching the median estimate of economists polled by Thomson Reuters.

The European Union-harmonized inflation rate slowed from 1.6 percent to 1.2 percent. annually. Economists have cautioned against reading too much into the notable decline in the harmonized rate, as it is mostly due to calculation changes.

Prices of food and non-alcoholic beverages continued to rise above average in December, hitting a 3.2 percent annual pace. Germans paid considerably more for dairy products, eggs and vegetables, but paid less for coffee, tea and cocoa products. For energy products, electricity experienced the biggest annual jump, climbing 11.3 percent. Heating oil and motor fuels fell 5.5 percent and 2.7 percent, respectively.

Meanwhile, consumer inflation fell to an annual rate of 0.8 percent in the broader euro area, confirming the European Commission’s initial estimate. The December reading puts inflation a tad above October’s four-year low of 0.7 percent. The threat of deflation forced the European Central Bank to cut interest rates that month. The ECB is now weighing more unconventional policies to ensure the currency region avoids deflation. The ECB is expected to face strong opposition from Germany’s Bundesbank should it pursue looser monetary strategies.

Unlike the Eurozone, which will be hard pressed to register meaningful growth in 2014, Germany’s economy is expected to grow by 2 percent this year, according to Citigroup. Europe’s largest economy expanded 0.4 percent in 2013, as recession in the Eurozone dampened its export market.

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