Inflation falls in boost for economy

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Inflation falls in boost for economy
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German savers celebrated on Monday after figures showed inflation fell to its lowest rate since 2010 in 2013.


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Germany still remembers how millions lost their savings in the hyperinflation chaos of the early 1920s – and so are traditionally wary of the potential damage inflation can cause to the economy.

Yet figures released on Monday showed inflation in 2013 was at its lowest rate since 2010, due a fall in petrol and heating costs. 

Prices of consumer goods rose by 1.5 percent last year, according to the Destatis federal statistics office figures - well below the European Central Bank (ECB) stable target of a two percent rise.

Using the Harmonised Index of Consumer Prices (HICP), the ECB's inflation yardstick, inflationary pressures in Germany slowed sharply on an annual average basis to 1.6 percent in 2013 from 2.1 percent in 2012.

However, the news was not all encouraging. Of all consumer goods, essentials such as food saw the sharpest rise in 2013 and December saw inflation inch higher compared with the rest of the year.

For December alone, the cost of living rose by 1.4 percent on a 12-month basis, compared with 1.3 percent in November, the federal statistics office said in a statement. Commentators have put this down to a spike in food costs.

The cold winter, floods in June and a particularly hot summer are being blamed for crop failures leading to an above-inflation jump in German food prices over the past 12 months and a four percent rise in the overall price of food.

German farmers' associations predict food prices will continue to rise this year, but not beyond the general rate of inflation.

"We're expecting the prices to continue on a moderate upwards trend," said Simon Junker of the German Institute for Economic Research (DIW),  while inflation is not expected to hit two percent again until the end of 2014 at the earliest. 

Read more: Crop failures push up German food prices


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