In World Economy News 31/07/2015
German consumer prices has remained very weak this month, data from states around the country suggests, bolstering the European Central Bank’s (ECB) case for pressing ahead with its bond-buying plan to lift inflation across the euro zone.
In North Rhine-Westphalia (NRW), the federal state that tends to act as a bellwether for the national inflation rate, price pressures eased to 0.2 percent on the year in July from 0.3 percent the previous month.
In three other states, yearly inflation slowed and it was unchanged in two more states. State data is used to calculate Germany’s national inflation rate, due out at 1200 GMT.
Capital Economics economist Jennifer McKeown said data from the states suggested annual consumer prices in Europe’s largest economy held steady at 0.1 percent when harmonised to compare with other European countries.
But ING economist Carsten Brzeski said the harmonised rate could even slip to zero, though he said this would not reflect badly on the ECB’s attempts to push inflation in the euro zone back towards its target of just below 2 percent over the medium term via bond-buying, or quantitative easing (QE).
“You could rather see it as a confirmation of the stance of the ECB not to follow the premature calls of some market participants calling for early tapering of QE,” he said, noting that a drop in energy prices had been a major factor in slowing inflation in some German states.
“The success of the ECB’s QE programme can, at least up until now, not be measured in headline inflation data – it’s going to take while before we really see the impact on the real economy from QE,” he said.
The ECB is pumping around 1 trillion euros into the economy by buying government bonds and other assets via the QE scheme.
Economists polled before the states’ data was published predicted that harmonised annual inflation would remain stable at 0.1 percent.
Other data published on Thursday showed Spanish EU-harmonised consumer prices turned negative in July after a reading of zero percent the previous month.
That, along with data from German states, could mean flash euro zone data due on Friday shows inflation slowed to 0.1 percent in July after a 0.2 percent rise in June, Brzeski said.
Economists polled by Reuters had expected that reading to remain stable.
Separate data showed the number of Germans out of work climbed in July but the jobless rate stayed at a post-reunification low of 6.4 percent and economists said this, combined with weak inflation, pointed to stronger consumption ahead.
