Bloomberg News

Five German States Say Inflation Slowed in June on Energy

June 27, 2012

Five German states said inflation eased in June as energy prices fell.

In Bavaria, the inflation rate dropped to 2.2 percent from 2.3 percent in May, the state’s statistics office in Munich said in an e-mailed statement today. Brandenburg, Hesse, Saxony and North Rhine-Westphalia also reported declines.

Economists forecast that German inflation, calculated using a harmonized European Union method, will weaken to 2.1 percent from 2.2 percent, the median of 22 estimates in a Bloomberg News survey shows. The Federal Statistics Office in Wiesbaden will release that report, based on data from six states, later today.

Oil prices have dropped 13 percent from a year ago and the sovereign debt crisis is damping economic growth across the 17- nation euro area, fueling speculation that the European Central Bank may cut interest rates as soon as next week. At the same time, German unemployment is at a two-decade low and workers are winning bigger pay increases, creating price pressure in Europe’s largest economy.

“Slowing German inflation rates can principally be attributed to the decrease in energy prices,” said Mario Gruppe, an economist at NordLB in Hanover. “Europe’s economic weakness also prevented recent wage gains in Germany from sparking a wage-price spiral. With price pressures receding in Europe, the ECB has enough room to cut interest rates.”

ECB President Mario Draghi said on June 15 that there are “no inflation risks in any euro-area country.”

The ECB Governing Council discussed earlier this month whether to lower its benchmark rate from 1 percent to support Europe’s weakening economy. The next rate-setting meeting of the Frankfurt-based institution is on July 5.

The ECB expects euro-area inflation to drop below its 2 percent price-stability threshold early next year, Draghi said on June 6.

                         Monthly            Yearly
                         Change             Change

Saxony                  -0.1% (-0.2%)         1.7% (1.9%)
Hesse                    0.0% (-0.2%)         1.8% (1.9%)
Bavaria                  0.0% (-0.2%)         2.2% (2.3%)
Brandenburg             -0.1% (-0.2%)         1.8% (2.0%)
North Rhine-Westphalia  -0.1% (-0.3%)         1.3% (1.5%)
Baden-Wuerttemberg       n/a  (-0.2%)         n/a  (1.9%)

To contact the reporter on this story: Joseph de Weck in Frankfurt at jdeweck@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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