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German inflation at 15-year high

AFP · 29 Jul 2008, 18:48

Published: 29 Jul 2008 18:48 GMT+02:00

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The figure for Europe’s biggest economy was the same as the one set in June, and represented the highest rate since December 1993, the Destatis national statistics office said.

On a monthly basis, consumer prices gained 0.6 percent from June, it added. Final figures are to be released on August 14.

Vacation services such as package holidays and lodging compounded steady increases in the costs of energy and food, Destatis said. When energy costs were stripped out, inflation came to about 2.2 percent, the statistics service noted.

But at Commerzbank, analyst Matthias Rubisch noted that even though “the price of fresh vegetables generally falls at this time of year,” a 12-month increase had reached eight percent, “making food the second biggest strain on consumer finances.”

On Monday, a survey of German consumers by the GfK institute said confidence had fallen to a five-year low owing to chronic price increases.

“The positive momentum generated by the job market and the beneficial wage and salary increases compared with last year are consequently being demolished by inflation,” GfK said.

Rubish said that “if oil prices now stay largely stable, we do not envisage the inflation rate falling before the final quarter of the year.” German authorities had hoped consumption would contribute to economic growth, which is now forecast at 1.7 percent this year and 1.2 percent in 2009.

Story continues below…

German inflation will also ensure that price increases in the 15-nation eurozone remain well above the European Central Bank’s target of just below 2.0 percent, dampening hopes for lower interest rates in the coming months. Economist Alexander Koch at UniCredit Markets said that barring major shifts in commodity prices, he expected headline and core inflation “to move down only slightly in the coming months, with no sustained relief in sight before spring next year.”

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