German inflation drops below zero first time in eight months

In addition to dealing with worldwide Volkswagen scandal currently, Germany upsets global markets as annual inflation reaches negative territory in September after eight months of upward trend

Photo by: AP
Photo by: AP

Stickers "Made in Germany" the factory of sports goods maker Uvex in Lederdorn, southern Germany, January 29, 2014

German annual inflation turned negative in September for the first time in eight months and the weaker-than-expected reading could push the eurozone rate below zero, boosting the case for the European Central Bank to take more action.

Prices in Europe's largest economy, harmonised to compare with other European countries, fell by 0.2 percent after a 0.1 percent rise in August, preliminary data from the Federal Statistics Office showed on Tuesday.

Stefan Kipar, an economist at BayernLB, said he now expected the eurozone index to slip to -0.2 percent when the figure for the currency bloc is released on Wednesday.

The ECB is already ploughing a trillion euros into the eurozone financial system to try to push inflation up towards its target. However, inflation and economic growth remain stubbornly low, so markets are starting to price in an expansion of its quantitative easing (QE) programme.

The German rate for September is the weakest since January. Other data on Tuesday showed Spanish prices falling at their fastest rate in seven months while Belgian inflation remained low, albeit above 1 percent for the first time since January 2014. All three readings were well below the ECB's eurozone target of just below 2 percent over the medium term.

Economists polled before Tuesday's data was published had expected the annual eurozone rate to slip to zero after a positive reading of 0.1 percent in August.

For Germany, they had forecast harmonised inflation slowing to zero. A breakdown of non-harmonised data showed energy prices dropped 9.3 percent on the year.

Sal Oppenheim economist Ulrike Kastens said the ECB would probably announce an extension of its QE programme by the end of this year given that it had already cut its inflation forecasts earlier this month.

However, ECB Executive Board member Sabine Lautenschlaeger said on Monday that it was too early for the ECB to discuss taking further action as the eurozone economy was expected to recover modestly.