German Prices Fell 0.1% In July, First Contraction Since 2016

Prices in Germany's pandemic-hit economy fell by 0.1 percent year-on-year in July, official data showed Thursday, the first time inflation has turned negative since April 2016

Frankfurt am Main, (APP - UrduPoint / Pakistan Point News - 30th Jul, 2020 ):Prices in Germany's pandemic-hit economy fell by 0.1 percent year-on-year in July, official data showed Thursday, the first time inflation has turned negative since April 2016.

Federal statistics agency Destatis said the plunge, which comes after prices grew 0.9 percent in June, was partly influenced by falling energy prices and the German government's temporary cut in value-added taxes.

The VAT reduction went into effect on July 1 and is a key element of stimulus efforts aimed at helping Europe's top economy recover from the coronavirus-induced recession.

Analysts surveyed by Factset had expected price growth of 0.1 percent for July.

The reading, based on preliminary data, comes after another large EU economy, Spain, also saw inflation slip into negative territory (-0.7 percent) this month as the hard-hit travel sector cut rates on hotels and tourism.

The figures raise the spectre of deflation in the eurozone and are likely to cause some anxiety at the European Central Bank.

Deflation, or an extended period of falling prices, can be harmful for the economy when it deters consumers from spending in anticipation of even cheaper prices, creating pressure on businesses who may end up cutting jobs.

Germany's VAT reduction is only set to last until December 31, however.

The ECB has in recent years unleashed huge stimulus to drive up economic growth and push inflation up to its target of close to, but below two percent.

It has bought nearly three trillion euros in government and corporate bonds since 2015, held interest rates at record lows and offered ultra-cheap loans to banks to encourage spending and investment.

The economic devastation wrought by the coronavirus has seen the Frankfurt institution ramp up those efforts with an additional 1.3-trillion euro "pandemic emergency" bond-buying scheme.

Using the ECB's preferred yardstick, known as the Harmonised Index of Consumer Prices (HICP), German inflation showed zero growth in July year-on-year.

In a month-on-month comparison, HICP inflation turned negative at -0.5 percent.