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German Price Growth Weakens

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German Price Growth Weakens

Germany’s Bundesbank has just released detail of this month’s Import Price Index figures. The month on month number has come in at -0.6% compared to the previous fall of 0.1%, markets had anticipated this figure as being 0.2% lower. The year on year number is -3.3%, this represents a further fall on the previous months reading of -2.7%, consensus estimates were for a fall to just 2.8%.

The Import Price Index is a figure that discerns between the volume and cost of imports arriving in Germany. Today’s number, showing a further fall in prices, can be taken as indicative of the general price situation in Germany and the Eurozone as a whole.

Germany is undoubtedly leading the way in the Eurozone’s recovery struggles, the bloc is finding itself mired in a situation where price growth is not only lacking but deflation is becoming a real possibility. The European Central Bank (ECB) has been reluctant to take precautionary action to stave off a deflationary spiral for the zone. Part of the reason for the ECB’s fence sitting has to do with the disparity in growth rates across the Eurozone, monetary stimulus for periphery countries could have the effect of overheating the stronger economies within the single currency area.

Recent developments, including today’s Import Prices fall, have shown that the German economy is not immune to the onset of deflation. The Harmonized Index of Consumer Prices, the ECB’s preferred measure of inflation, this month highlighted a further fall in German price growth to just 0.9%.

It is now clear that the deflationary threat is pervasive across the Eurozone and not just contained to the weaker economies. If nothing else this spread of price growth weakness to the Eurozone’s largest economy will remove any potential remaining obstacles to the ECB’s long overdue action.

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