Inflation below zero

Good for consumers but a problem for monetary policy: consumer prices have fallen for the fourth time in a row.

Inflation unter Null

Wiesbaden (dpa) – November saw inflation in Germany dip below zero for the fourth time. Driven down by the reduction in VAT and the sharp drop in energy prices, consumer prices were 0.3 percent below last November’s level, according to the Federal Statistical Office. Life has therefore become somewhat cheaper for consumers on average.

The renewed marked decline in energy prices had a dampening effect on inflation. Crude oil prices collapsed amid the corona crisis and the global economic slump – this is evident to consumers from cheaper heating oil and petrol. Energy prices in November fell by a pronounced 7.7 percent year-on-year. By contrast, consumers had to pay slightly more for food, prices rising by an average of 1.4 percent. Services rose by 1.1 percent, with higher rents having a significant impact.

Falling or even negative inflation rates are usually an alarm signal for currency watchdogs. The European Central Bank (ECB) targets an annual inflation rate of just under 2.0 percent for the Eurozone and its 19 countries in the medium term. If prices remain low or fall across the board, companies and consumers may be tempted to postpone investments - in the belief that it may soon become even cheaper. This wait-and-see attitude can having a braking effect on the economy.

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