Germany Returns to Inflation

An upturn in energy prices helps consumer prices in Germany return to inflation.

Just as the experts had been expecting, Germany made the most tentative of returns to inflation today.

Figures were dragged into inflation by rising prices in newspapers, tobacco, periodicals and the pharmaceutical industry.

Figures released by the Federal Statistics Office showed the price paid by consumers increased by 0.3 over the same figures in April following a small decline the previous month.

Year on year this represents a small, but not entirely insignificant increase of 0.1 over the same month in 2015.

Even so, prices remain low with overall inflation depressed by the year on year fall in energy prices which are 7.9% down on the previous year. The biggest of all the price decreases among the energy products was in mineral oil while charges for central and district heating have taken a hit also.

Food prices remain unchanged compared with the same month last year and so, unlike previous months, had no upward pressure on the overall inflation rate. Back in April, food rates increased by 0.5%.

Breaking those figures down we see a slight increase on some products such as fruit (1.8%) and vegetables which grew by 2.8% while fish products were up by 3.3%. However, dairy prices took a sharp dip of 6.2% and butter is down 15.2% on May 2015.

Year on year, prices for goods fell by 0.9% largely due to the decrease in oil prices. However, some goods experienced considerable growth during the year. The pharmaceutical industry continues to thrive with prices growing by 2.8% while newspapers and periodicals grew by 4.2%. Tobacco, meanwhile, rose by 5%.

Services were up by 1.2% over a year ago largely due to a moderate movements of net rents. Other services such as sporting services (3.1%), insurance (2.4%) and car maintenance (2.3%)

The data largely confirms the FSO’s predictions for May and represents more good news for German after Eurozone figures released earlier this week showed that Germany - along with Spain – were the fastest growing major economies over the first quarter of 2016.

The increases are largely being attributed by the FSO to month on month gains in the energy market.

These were up by 1.6% compared with a month earlier. Heating oil gained 9% and motor fuels were up by 3.3%.

The direction of oil prices will have a significant impact on where inflation goes from here. Europe has been struggling with low or negative inflation for some time, as oil prices experienced one of the biggest shocks in recent memory – spurred by a glut in supply and OPEC’s refusal to cut their output.

Recently, though, there are signs that the price may be turning a corner. It remains extremely volatile, but new falls in US crude oil stocks have pushed prices a little higher. Figures released on June 8 th showed US crude inventories fell by 3.2 million barrels Brent Crude had reached a high for 2016.

However, in recent days the price has experienced a small decline as investors take their profits.

Germany, then, has made a return to inflation albeit by only the smallest amount. The future direction of energy prices will continue to have a major bearing on where it goes from here.

Taking the energy prices out of the equation, the inflation rate for May 20016 would have been 1.2%, an indication of healthy activity elsewhere.

Overall, though, little has changed, and just after the announcement, the Euro remained relatively unchanged against its rivals.