BERLIN: German consumers feel they are experiencing deflation for the first time since the height of the global financial crisis in 2009, a survey showed, despite a slight rise in the cost of living in Germany in December.
This perception could help boost private consumption in the months ahead, economists said.
The actual euro zone inflation rate has already turned negative, but in Germany annual consumer prices harmonised to compare with other European Union countries rose 0.1 percent in December — still a more than a five-year low.
Germans thought that prices in Europe’s largest economy had dropped 1.2 percent in December however, after stagnating in November, the survey by UniCredit showed.
Andreas Rees, economist at UniCredit, said a fall in fuel prices was behind the perceived drop in consumer prices, while lower food costs also helped. He said this perception should help the economy, which expanded by 1.5 percent in 2014.
“Some of the money saved will certainly be put in piggy banks, but people will spend more too and that, along with record employment and rising wages, creates very good conditions for consumption to remain the main growth driver this year,” he said.
Fuels like petrol and diesel cost 12.1 percent less on average in December 2014 than in the same month in 2013 due to the fall in oil prices on international markets. A barrel of oil now only costs around half as much as it did last summer.
Euro zone inflation turned negative in December for the first time since 2009, with consumer prices dropping by 0.2 percent on the year due to much cheaper energy. ECB Governing Council member Ewald Nowotny said on Monday he did not, however, expect a protracted period of deflation.
The ECB faces a crucial test of its resolve to do “whatever it takes” to preserve the euro when it decides this week on buying government bonds to combat deflation and revive the economy.
