The German inflation slows, the EU should follow
August 28, 2010
The price increase has decelerated in August in Germany, statistics released Friday showed, suggesting that inflationary pressures across the euro area could be diminishing.
The higher wage demands from German unions, however, may counteract this trend in the first economy in Europe.
The rate of annual inflation in Germany has returned 1.0% against 1.2% in July, according to the first estimate of the Federal Statistical Office based on data from six states.
The slowdown, in line with expectations of economists polled by Reuters last week, is due primarily to lower gas prices and heating.But core inflation, which excludes volatile items like fuel, is also contained.
The evolution of the German inflation provides an additional argument to the European Central Bank to maintain its current monetary policy ultra-accommodative.
"The German inflation may be close to zero at year end," said Jennifer McKeown, economist at Capital Economics."(The) benign inflation outlook is a further reason for the ECB left interest rates unchanged for a long time."
However, inflationary pressures could be fed by higher salaries in the coming months: the union IG Metall has announced Friday that he would demand 6% increase for some 85,000 employees in the steel industry of the west during negotiations which should start in a few days.
After the period of wage moderation helped by the recession last year, a return to sustained growth (2.2% in the second quarter, 3% expected throughout this year) could encourage a proliferation of such claims.
Economists point to the moment that core inflation remains low in Germany.
"We expect the rate of core inflation will remain focused on a moderate downward trend for a considerable period," said Aline Schuiling, an analyst at ABN AMRO. "However, we see the price of food, energy and other commodities upward trend."
The first estimate of inflation across the euro area is expected next Tuesday. Economists expect the average to 1.6% yoy, against 1.7% in July.
Calculated the European harmonized standards (HICP), the German inflation appears unchanged in August from July and 0.9% over one year.In July, it had risen 0.3% from June and 1.2% over one year.
Final figures and detailed inflation in Germany will be released Sept. 9.
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