German inflation stalls in August 2020

German consumer prices were flat in August, official data said on Monday, August 31, a month after inflation turned negative for the first time since 2016.

Inflation was 0% in August, after falling 0.1% in July, with both figures still well below the 0.9% rise in June, as the country continues to reel from the effects of the coronavirus pandemic.

Federal statistics agency Destatis said it was due in part to Germany’s cutting of value-added tax (VAT) in July to spur spending. The tax reduction is set to last until the end of the year.

The August reading, based on preliminary data, was slightly above analysts’ predictions of a 0.1% fall, according to a survey by FactSet.

Compared with the previous month, consumer prices fell 0.1%, according to Destatis.

Uwe Burkert, chief economist at LBBW bank, said inflation wouldn’t pick up noticeably until the start of 2021. 

“As expected, not much has happened in August as regards German inflation. After the slide in July caused by the reduction in VAT, inflation is now hovering around zero and this is likely to remain so for the time being in the coming months,” he said.

The stagnating prices in Europe’s largest economy will continue to raise the specter of eurozone deflation and are likely to cause some anxiety at the European Central Bank (ECB).

The numbers might drag down eurozone inflation data, which is to be released on Tuesday, September 1, and hinder any chance of prices recovering towards the ECB’s target of close to, but below, 2% across the currency bloc.

“There had been speculation as to whether the current [coronavirus] crisis would be deflationary or inflationary…. Today’s German inflation data suggest that for the time being the deflationary threat is clearly more pressing than any inflationary one,” said ING economist Carsten Brzeski.

In response to the devastating economic consequences of the pandemic, the ECB unveiled an emergency 1.35-trillion-euro ($1.61-trillion) bond-buying program to keep credit flowing to the continent’s businesses.

The German economy shrank by a record 10.1% in the 2nd quarter as coronavirus lockdowns took their toll, but many say a recovery is well on its way. 

The country predicts a fall in gross domestic product of more than 6% for 2020 as a whole.

According to the ECB’s preferred yardstick, known as the Harmonized Index of Consumer Prices (HICP), German inflation fell 0.1% year-on-year.

In a month-on-month comparison, HICP inflation declined 0.2%. – Rappler.com