German June inflation stays subdued

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Lower energy costs kept inflation at bay in June in Germany, Europe's top economy, authorities said on Monday, with one analyst declaring it "dead as a doornail."

Consumer prices rose by 0.9 percent compared with the same month last year, the national statistics office said, citing preliminary figures.

In May, inflation had risen by 1.2 percent, suggesting that inflationary pressures could be easing.

"As in the previous months, the year-on-year rate of price increase is mainly determined by the sharp price rises for heating oil and motor fuels," a statement said.

On a monthly basis, consumer prices increased by 0.1 percent.

"Currently, German inflation is dead as a doornail. This is a remarkable development, given the dramatic weakening of the euro exchange rate in recent months," said Unicredit analyst Andreas Rees.

"We do not see any significant upward price pressure in the next few months. At the same time, the opposite holds as well ... we are not heading into outright deflationary territory," he added.

For his part, Commerzbank economist Simon Junker forecast that energy prices "will no doubt rise quite substantially over the remainder of the year, mainly on account of the weak euro."

But because headline inflation, which is obtained when volatile components like energy are stripped out, should remain low in the coming months, "we do not share concerns about either inflation or deflation," he said.

"Over the year on average, Germany's inflation rate should amount to around one percent, and only slightly more next year at just short of 1.5 percent," Junker added.

© 2010 AFP

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