Zero-percent inflation in Germany turns up heat on ECB

26th February 2016, Comments 0 comments

Falling energy prices brought inflation in Germany back down to zero percent this month, data showed on Friday, turning up the heat on the ECB to avert possible deflation in the wider euro area.

Germany's national inflation yardstick, the consumer price index, stood at zero percent in February, compared with 0.5 percent in January, the federal statistics office Destatis said.

And using the Harmonised Index of Consumer Prices (HICP) -- the barometer used by the European Central Bank -- the inflation rate stood at minus 0.2 percent in February, compared with plus 0.4 percent in January.

The last time the German HICP index was in negative territory was in September 2015, when it reached minus 0.1 percent. And the last time it was lower than minus 0.2 percent was in January 2015, when it stood at minus 0.4 percent.

The data were still only preliminary, calculated from consumer price data for six of Germany's 16 regional states. But final data based on all 16 states were scheduled to be published on March 11.

The ECB regards annual inflation rates of close to but just under 2.0 percent as conducive to healthy economic growth and in recent years has launched a raft of measures to kickstart prices and push area-wide inflation back up nearer that level.

A controversial programme of sovereign bond purchases, known as QE or quantitative easing, was rolled out last year and initially appeared to work.

- Stimulus measures in March? -

But the economic slowdown in China and depressed oil prices have pushed inflation expectations back down again.

At the ECB's first policy meeting this year, president Mario Draghi suggested additional monetary easing could be on the cards as early as March if inflation expectations do not pick up soon.

Analysts said the German inflation data would fuel speculation that the ECB will launch new stimulus measures when its governing council meets on March 10.

"Pressure for appreciable ECB stimulus in March has been ramped up by early eurozone consumer price data for February which suggests that a return to deflation is highly probable as a consequence of lower oil, commodity and food prices," said IHS Global Insight analyst Howard Archer.

While the downturn in inflation was primarily due to lower oil and commodity prices, "it would likely reinforce ECB concerns about potential second-round effects on wages and price-setting," Archer said.

"We expect the ECB to trim its deposit rate by a further 10 basis points to minus 0.4 percent at its March meeting and believe it could very well step up its monthly purchase of assets, perhaps by 20-30 billion euros from the current level of 60 billion euros," the expert argued.

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© 2016 AFP

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