German Import Prices Decline Most Since 1962 on Oil

By Jana Randow

Nov. 26 (Bloomberg) -- Import prices in Germany, Europe’s largest economy, dropped by the most since records began as energy and commodity costs declined.

Prices fell 3.6 percent in October from the previous month, the biggest decline since 1962, the Federal Statistics Office in Wiesbaden said today. From a year earlier, import price inflation slowed to 2.9 percent, the lowest annual gain in 12 months.

Commodity prices have fallen as world growth has slowed, eroding demand. At $50 a barrel the cost of oil has retreated 65 percent from its peak of $147 in July. Abating inflation pressure has given the European Central Bank room to reduce interest rates by 100 basis points since early October and policy makers have suggested more rate cuts could follow.

“It is all about cutting rates as much as possible and as fast as possible,” said Thorsten Polleit, chief economist at Barclay Capital in Frankfurt. “Individual indicators play a minor role, though today’s data obviously work in the right direction.”

In October, prices for imported crude fell 6 percent from a year earlier, the first annual drop since August of 2007, and declined 24.8 percent from September, today’s report showed.

Slower Growth, Slower Inflation

The figures add to evidence that the inflation rate is declining. German consumer price growth is expected to slow to 1.7 percent under a harmonized European Union method in November from 2.5 percent, a Bloomberg News survey shows. The statistics office will release a first estimate later today. Euro-area inflation data will be published by Eurostat, the European Union’s statistics arm, on Nov, 28.

“There is room for further interest-rate cuts,” European Central Bank council member Axel Weber said in an interview with Handelsblatt published today. “Energy prices are declining, food is becoming cheaper again, industrial capacity use is weakening,” pushing down inflation.”

Prices for petroleum products were down 3 percent on the year and 20.8 percent in the month, today’s report showed. Natural gas prices rose 4.5 percent from September and 60 percent in the year. Excluding crude oil and petroleum products, import prices rose 4.1 percent in the year, the first time in 14 months that the sub- index rose at a steeper pace than total import prices

German industrial production declined the most in almost 14 years in September and business confidence as measured by the Ifo research institute plunged this month. The euro’s 19 percent drop against the dollar in the past four months makes imports more expensive while a recession at home and slower growth means companies have little room to pass on higher costs.

The global crisis and inflation have given central banks from Washington to Beijing leeway to reduce interest rates and governments on both sides of the Atlantic have launched stimulus packages to bolster their economies.

The ECB has lowered its interest rate by 100 basis points since Oct. 8 and investors expect the bank to cut its benchmark rate by at least 75 basis points at its next meeting on Dec. 4, Eonia forward contracts show. That would be the sharpest rate reduction in the bank’s 10-year history.

To contact the reporter on this story: Jana Randow in Frankfurt at jrandow@bloomberg.net