German inflation slows, boosting case for ECB action

Published 06.01.2015 00:00
Updated 06.01.2015 01:30

According to data released yesterday, inflation in Germany, Europe's biggest economy, hit a five-year low in December, turning up the heat on the European Central Bank (ECB) to do more to ward off the threat of deflation, analysts said. In a preliminary flash estimate, Destatis, the federal statistics office, calculated that German inflation stood at just 0.2 percent year-on-year last month, down from 0.6 percent in November. The last time inflation in Germany was lower than 0.2 percent was in October 2009. Taking 2014 as a whole, inflation stood at an annual average 0.9 percent, Destatis calculated. Using the Harmonized Index of Consumer Prices (HICP) - the ECB's yardstick - inflation in Germany was even lower at 0.1 percent in December, way under the central bank's target of just below 2 percent. The sharp slowdown in inflation in Europe's biggest economy will fuel fears that prices across the entire eurozone could begin falling and tip the region into deflation - a sustained and widespread drop in prices that hampers economic activity and could lead to job losses. While falling prices may sound good for consumers, deflation can trigger a vicious spiral in which businesses and households delay purchases, throttling demand and causing companies to lay off workers.

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