BERLIN: Annual inflation in Europe’s largest economy looks set to turn negative in January for the first time since the height of the global financial crisis in 2009, according to data from some German states.
Data from four federal states showed yearly inflation turning negative in January and therefore well below the European Central Bank’s target for close to but just under 2 percent over the medium term in the euro zone.
In North Rhine-Westphalia (NRW), Germany’s most populous state and a bellwether for the national rate, consumer prices fell at their sharpest monthly rate since 1950. On the year, the cost of living in NRW fell by 0.4 percent after rising by 0.1 percent in December.
A Reuters poll conducted before the state data was published found economists expected consumer prices to drop by 0.2 percent on an annual basis when harmonised to compare with other European countries (HICP) – the ECB’s preferred measure – and by 0.1 percent on the national measure.
Jennifer McKeown, senior European economist at Capital Economics, said the data suggested Germany would fall into deflation in January.
“Data from the German states suggest that national HICP inflation dropped below zero in January for the first time since October 2009, with a more negative reading than had been expected,” she said.
The fall in prices was largely driven by energy, while cheaper food also had an impact.
Christian Schulz, senior economist at Berenberg Bank, said there was a risk that the national inflation data came in lower than the consensus forecast. It should not have any major impact on European Central Bank policy because it has already announced its quantitative easing programme, he added.
