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Lower energy costs tank inflation rate

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Lower energy costs tank inflation rate
Photo: DPA
15:28 CET+01:00
Plummeting energy costs and oil prices have driven Germany's rate of inflation into the red, the federal statistics agency reported on Thursday, though economists aren't ready to start talking deflation just yet.

Destatis' report from Thursday showed that rate of inflation sank to -0.3 percent in January and went negative for the first time since 2009.

Economists had previously predicted a decline of 0.1 percent in the previous inflation rate of 0.2 percent in December 2014.

The last time the rate of inflation dropped below 0 was in 2009 during the height of the economic crisis. During that year, the rate dropped all the way to -0.5 percent before making a slow recovery.

Lower oil prices, meaning consumers have to pay around nine percent less for heating and fuel, have driven the downward trend.

"More and more, the lower prices for crude oil, which have more than halved since mid-2014, are  being passed on as savings to consumers," Commerzbank analyst Marco Wagner said.

Grocery prices have also dropped by 1.3 percent since the beginning of 2014, noted Destatis.

But despite the drop in those prices, economists say that this doesn't mean Germany is in deflation yet.

"The decline in inflation can be almost entirely attributed to the volatile prices for energy and food," said Christian Shulz of Bankhaus Berenberg. "This will save households money and, in turn, should fire consumption."

Excluding energy and food costs, inflation rose by 1.1 percent over January 2014.

Economists expect prices to fall for a few more months before climbing back up.

"A recovering economy in Germany should see inflation return in the summer months despite the dampening effect of falling oil prices," said Stefan Kipar, an economist with BayernLB.

SEE ALSO: ECB bond-buying 'brings risks': Weidmann

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