German August Consumer Prices Fall for Second Month

By Cornelius Rahn

Sept. 9 (Bloomberg) -- German consumer prices declined from a year earlier for a second month in August, indicating inflation pressures remained subdued even as the economy began to recover from its deepest recession in more than 60 years.

Consumer prices, calculated using a harmonized European Union method, fell 0.1 percent from a year earlier after dropping 0.7 percent in July, the Federal Statistics Office in Wiesbaden said in a statement today. The decline compares with an initial estimate that prices were unchanged on the year. From the previous month, prices rose 0.3 percent.

Inflation may accelerate as the global economy recovers, pushing up demand for commodities such as oil. While the German economy unexpectedly returned to growth in the second quarter, the pace of consumer-price increases may be restrained as rising unemployment restricts consumer spending.

“We have certainly seen the trough of price changes in July,” said Joerg Lueschow, an analyst at West LB in Duesseldorf. “Towards the end of the year, we expect inflation to be between 0.75 percent and 1 percent.”

On a non-harmonized basis, prices were unchanged in August from a year earlier and increased 0.2 percent from July.

Excluding energy and fuel, non-harmonized consumer prices rose 1 percent in August from a year earlier, the statistics office said. While crude-oil prices have more than doubled since mid-February to around $70 a barrel, they are more than 50 percent below the July 2008 record.

Inflation Forecasts

Euro-area consumer prices fell 0.2 percent in August from a year earlier, less than economists had forecast, data published on Aug. 31 showed. The European Central Bank last week raised its inflation forecasts for the region, saying price growth will average 0.4 percent this year and 1.2 percent in 2010.

ECB council member Axel Weber said yesterday that inflation pressures will remain subdued and it will take some time before the economy is growing fast enough to push up prices. “All in all, inflation fears, understandable as they may be, are unfounded,” Weber said at a conference in Frankfurt.

Metro AG, Germany’s largest retailer, said in July that it will reduce prices on 5,000 items at its cash and carry wholesale unit to attract customers. Puma AG, Europe’s second- largest sporting-goods maker, last month reported a 16 percent drop in profit as a result of increased discounting.

“When we look at basic goods, we won’t have inflation pressure for the next one and a half years since sellers don’t have much space to raise prices,” said Jens-Oliver Niklasch, an economist at Landesbank Baden-Wuerttemberg in Stuttgart.

To contact the reporter on this story: Cornelius Rahn in Frankfurt at crahn2@bloomberg.net