Currently low inflation rates - risk of deflation?
Destatis, 23 June 2009
Consumer price indices in the euro area
As the economic and financial crisis spread and the world market prices of many raw materials sharply dropped in the second half of 2008, the inflation rates fell considerably also in Germany. The inflation rate - measured by the change in the consumer price index on the corresponding month of the previous year - has been markedly below one percent in Germany since March 2009. In May 2009, an inflation rate of zero percent was observed. In view of those results, the risk of deflation is discussed in the general public.
Prices without energy are stable
Change in consumer prices on the same month a year earlier
The term of deflation is used for economic processes involving lasting decreases in price levels across the board. The latest figures show that currently prices are not decreasing across the board. Although the inflation rate has reached the lowest level in 22 years (zero percent), the main reason for that low level is the sharp fall in energy prices. Examining the consumer price trend without energy shows a rather stable price trend on average, with moderate rates of increase. Since January 2008, the year-on-year change in consumer prices (exclusive energy) has been between 2.3% and 1.1%, with a slight downward trend observed.
Also, the negative rates of change for energy prices may be just temporary, rather than permanent. The inflation rates are calculated by comparing the current price level with that of the previous year. At present, the energy price level is markedly lower than during the energy price boom a year ago. Therefore, the year-on-year comparison produces negative rates of change. Assuming that the energy prices will not decrease, it can be expected that negative rates of energy price change will no longer occur as from the end of 2009 at the latest, which is due to the end of the oil price boom in autumn 2008. In that case, the strong downward effect of energy prices on the inflation rate will gradually diminish over the next few months. Hence, current data do not show any trend indicating a longer-term decline in prices of energy sources.
Inflation rates in a European comparison
Consumer price indices in the euro area
What has been the recent trend of consumer prices in the other euro area countries? The so-called Harmonised Index of Consumer Prices (HICP) has specifically been designed for comparability of the inflation rates between the European Union member states; in Germany, it is calculated in addition to the national Consumer Price Index (CPI). The German HICP and the national CPI differ in coverage. The national CPI additionally covers owner-occupied dwellings, games of chance, motor vehicle tax and motor vehicle registration charge. In May 2009, the Harmonised Index of Consumer Prices for Germany, too, remained unchanged on May 2008 (±0.0%). In all euro area countries, the inflation rates in May 2009 were lower than the average of 2008. In some countries, even negative rates of change were observed for the Harmonised Index of Consumer Prices. For the total euro area, an inflation rate of zero percent was calculated for May 2009. As for Germany, it should be noted here, too, that the inflation rate is low especially because of the sharp fall in energy prices.
Authors: Karsten Sandhop and Dr. Peter Taschowsky - Federal Statistical Office
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