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Cheap fuels dampen inflation

November 12, 2013

German consumer prices in October increased at their slowest pace since 2010 as falling oil prices put a damper on rising costs of living. However, what is good for consumers might not be good for the economy.

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Werkstattleiter Roland Siebler posiert am Freitag (10.12.10) auf einer Tanstelle in Berlin - Prenzlauer Berg mit einem Zapfhahn vor einer Zapfsaeule mit der Aufschrift "Ethanol". Die Autofahrer in Deutschland muessen sich aus Umweltschutzgruenden auf eine neue Benzinsorte einstellen. Ab Januar wird an den mehr als 14.000 Tankstellen nach und nach die Benzinsorte Super E 10 eingefuehrt. Sie enthaelt bis zu zehn Prozent Bioethanol aus nachwachsenden Rohstoffen. So soll der Klimaschutz gestaerkt werden. Bisher werden nur fuenf Prozent Biosprit ins Benzin gemischt. (zu dapd-Text) Foto: Clemens Bilan/dapd.
Image: dapd

The cost of living in Germany rose by 1.2 percent in October, compared with the same month in 2012, which was the lowest monthly inflation rate in Europe's biggest economy since August 2010, the Federal Statistics Office, Destatis, announced Tuesday.

The slowdown followed a rate of 1.4 percent in September, and was primarily caused by significantly lower costs for fuels. In a year-on-year comparison, Germans in October had to spend about 10 percent less on heating oil and almost 6 percent less for car fuels than in the same months last year.

Rising prices in October were reported for food with butter prices leading the increase with 28 percent, followed by milk which was 20 percent more expensive.

Measured with the help of the European Union's Harmonized Index of Consumer Prices (HICP), German inflation also came in at a rate of 1.2 percent - well below the rate of 2 percent which the European Central Bank (ECB) has set for maintaining price stability.

The drop in inflation in Germany might add to ECB worries of deflationary pressures mounting in the crisis-hit eurozone. Across the 17-nation currency area, consumer prices rose by only 0.7 percent in October in a sign that demand was weak and the recovery fragile.

Deflation, which is marked by stagnant or falling prices, is bad for any economy. It causes consumers to withhold spending on the prospect of lower prices, thus reducing demand and the incentive for businesses to invest in jobs and production.

The downward trend prompted the ECB last week cut its main interest rate to a new historic low of 0.25 percent.

uhe/ng (Reuters, AFP, dpa, AP)