German consumer prices continue to fall in December

FRANKFURT AM MAIN: German consumer prices fell in December for the fourth consecutive month, official data showed Wednesday, pushed down by a temporary VAT cut to stimulate consumer spending during the pandemic crisis.

Inflation remained in negative territory in December, at minus 0.3 percent year-on-year, according to preliminary data from federal statistics agency Destatis, the same as in November and staying at the lowest level since January 2015.

The agency added that annual average inflation is expected to stand at 0.5 percent for 2020.

A sales tax reduction to boost consumer spending from July after the first wave of the virus has contributed to lower prices in Europe's top economy.

But the end of the VAT reduction on December 31, alongside the expected easing of virus restrictions in the coming months, "should push headline inflation in only one direction from here: up", ING bank economist Carsten Brzeski said.

"Today's inflation number should mark the end of a government-induced period of deflation," he said.

In mid-December, Germany tightened restrictions to curb the coronavirus spread, closing non-essential shops during the key Christmas shopping season and complicating consumer price collecting as "some products were not available on the market", Destatis said.

After coping relatively well in the spring, Germany has been hit hard by the second wave, with the current shutdowns to remain in place until January 31.

Energy prices in Germany continued to dive in December, falling 6 percent year-on-year, while consumer goods prices were 1.8 percent lower. Food prices rose 0.5 percent meanwhile, Destatis said.

According to the ECB's preferred yardstick, known as the Harmonised Index of Consumer Prices (HICP), German inflation stood at minus 0.7 percent year-on-year -- far off the ECB's inflation target of just under two percent.

Low inflation in Germany and other eurozone nations, combined with uncertainty about the economic recovery, led the European Central Bank in December to bolster its emergency pandemic bond-buying programme to 1.85 trillion euros ($2.3 trillion).