German Import Prices Drop, Led by Decline in Oil Cost

By Jana Randow

Dec. 22 (Bloomberg) -- German import prices fell in November by the most in almost five years on energy products, adding to evidence that cost pressures in the euro area’s largest economy are easing.

Prices dropped 1.3 percent in November from a year earlier after rising 2.9 percent in October, the Federal Statistics Office in Wiesbaden said today. Economists expected a drop of 0.2 percent from last year, a Bloomberg News survey of 14 analysts showed. In the month, prices fell 3.4 percent, the second biggest drop on record after last month’s 3.6 percent decrease.

Declining prices and the recent appreciation of the euro ease pressure on companies’ profit margins as the country is fighting its worst recession in 12 years. At the same time, the stronger euro burdens exports and damps demand for German-manufactured goods. Business sentiment dropped to the lowest level in more than a quarter of a century.

“We’ll see an extreme fall off in inflation in coming months,” said Joerg Angele, an economist at Bayerische Landesbank in Munich. “The sharp price declines will surprise the European Central Bank and give more room to cut interest rates.”

ECB Leeway

Inflation pressures in Germany are easing. Consumer prices slowed to 1.4 percent in November from 2.5 percent in October under a harmonized European Union method. Producer prices dropped the most since records began in 1949 in November. Wholesale prices fell 0.8 percent from a year earlier, marking the first decline in more than five years and the lowest reading since June 2002.

The ECB has cut its key interest rate by 175 basis points to 2.5 percent since early October to combat recession and investors bet it will lower borrowing costs to at least 2 percent in January, Eonia forward contracts show. Policy makers have indicated in recent days that they’re reluctant to decrease rates much further.

Prices for imported crude oil fell 30 percent in the year and 20 percent in the month, today’s report showed. Prices for oil products decreased 28 percent while natural gas was 55 percent more expensive in the year. Excluding energy, import prices rose 3.2 percent in the year.

The euro has appreciated 12 percent from a 2 1/2-year low on Nov. 11, putting pressure on the exports of German companies, which are struggling with eroding global demand. In Japan, exports plunged the most on record in November as global demand for cars and electronics collapsed, signaling more factory shutdowns and job cuts are likely as the recession deepens.

The International Monetary Fund predicted on Nov. 6 that global gross domestic product, the measure of all goods and services, will rise 2.2 percent next year. It defines a world recession as growth of less than 3 percent.

German business climate fell to the lowest level since 1982, as companies’ assessment of current conditions plunged. Germany’s economy is likely to shrink for a third straight quarter in the three months through December and will contract 0.8 percent next year, its worst performance since 1993, the Bundesbank said on Dec. 5.

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