Final HICP

June: -0.2% m/m, +2.0% y/y (unrevised)
May: -0.2% m/m, +2.2% y/y

Final CPI

June: -0.1% m/m, +1.7% y/y (unrevised)
May: -0.2% m/m, +1.9% y/y
—

FRANKFURT (MNI) – German annual consumer price inflation was
confirmed at +1.7% in June, its lowest level since December 2010 thanks
to cheaper energy, the Federal Statistical Office reported on Wednesday.

Prices continued to decline on the month, easing to -0.1% to bring
overall levels to four-month lows. In EU-harmonized terms, prices fell
0.2% on the month, dampening the annual rate to 2.0% from 2.2% in April,
also in line with preliminary forecasts.

With cheaper heating oil (-4.3%) more than offsetting the modest
rise in electricity prices (+0.3%), household energy was 0.6% cheaper in
June to give an annual rise of 4.9%. Motor fuel (-2.9%) was also notably
cheaper, knocking transport costs down 0.8%, but lifting annual
inflation 0.1 percentage point to +2.1%.

Excluding household energy and motor fuel prices, core CPI rose
+0.1% on the month and +1.4% on the year.

Oil briefly topped $100 a barrel last week and earlier this week,
but eased back down after the Norwegian government stepped in to end a
two-week oil workers’ strike, thus averting a possible shutdown in
production.

While average oil prices for July remain more than 4% higher than
in June, favourable base effects and wanning demand should lead to
reduced upward energy price pressures on annual inflation rates.

Food and non-alcoholic beverage prices rose 1.0% on the month to
give an annual rise of 3.5%.

Despite the modest rise in package vacation prices (+0.1%), overall
leisure prices were unchanged on the month to give an annual rise of
1.2%.

June’s PMI polls showed manufacturing input prices falling for the
first time this year, but services input costs still boosted by energy.
Output prices as a whole were broadly unchanged, as the a rise in
service tariffs was offset by the slight dip in prices at the factory
gate.

Price pressures are likely to continue easing in the short term, an
Ifo survey showed, as selling price expectations in all major sectors
fell further last month. Ifo currently projects inflation to average
+2.0% both this year and the next after +2.3% in 2011. The
International Monetary Fund has forecast harmonized inflation at +2.2%
this year and +2.0% for 2013.

With a recent GfK poll showing households’ inflation fears waning
and buying propensity growing on the back of higher income expectations,
private consumption is likely to continue as a main growth driver of the
economy in the near term.

Noting current oil futures prices, European Central Bank President
Mario Draghi projected inflation in the Eurozone to slow further this
year and descend below 2% in 2013.

“Over the policy-relevant horizon, in an environment of modest
growth in the euro area and well-anchored long-term inflation
expectations, underlying price pressures should remain moderate,” Draghi
said, citing risks to the price outlook “broadly balanced over the
medium term”.

“The main downside risks relate to the impact of weaker than
expected growth in the euro area,” Draghi said. “Upside risks pertain to
further increases in indirect taxes, owing to the need for fiscal
consolidation, and higher than expected energy prices over the medium
term.”

— Frankfurt bureau: +49 69 720 142; email: frankfurt@marketnews.com —

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