Consumer prices fall for first time in 22 years

Consumer prices fall for first time in 22 years
Photo: DPA
Inflation in Germany dropped 0.5 percent last month compared to the same period in 2008 – the first such decline in 22 years – raising the spectre of deflation amidst the worst economic downturn since World War II.

Month-to-month consumer prices held more or less steady, the Federal Statistics Office said from Wiesbaden. June and May inflation was at 0.1 percent and 0.0 percent respectively. July 2009 numbers were slightly higher due to seasonal price adjustments.

Much of the adjustment in prices were due to the drop in the price in energy, which in total fell 11.5 percent in July 2009 compared to July 2008. Food prices also fell 2.4 percent compared with one year ago and other goods, such as electronics (down 10.1 percent), saw reductions as well.

Most observers do not yet believe Germany faces the imminent threat of deflation, which occurs when prices enter a dangerous downward spiral. But the figures are sure to raise eyebrows in Europe’s largest economy. Christian Dreger of the German Institute for Economic Research (DIW) told newspaper Die Welt said economist will be looking to see if consumer prices start to rise again in September.

The Statistics Office found that the only place where prices went up in month-to-month comparisons were on vacation packages. Consumers had to pay more for holidays (14.5 percent), air travel (10.5 percent) and accommodations (9.5 percent) while travelling this summer.

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