German inflation drops to lowest level in four years, French prices plunge

Wednesday 13 August 2014 08.49
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German inflation falls to 0.8% in July
German inflation falls to 0.8% in July
French prices dropped sharply in July compared to the previous month
French prices dropped sharply in July compared to the previous month

Inflation in Germany, Europe's biggest economy, fell in July to its lowest level in over four years, official data showed today. 

Confirming a flash estimate from last month, the federal statistics office Destatis calculated that German inflation this month dropped to 0.8% year on year, its lowest level since February 2010, after rebounding to 1%in June. 

Inflation has been unusually low across the 18-nation euro zone, fuelling concern the region could slip into deflation.

This is a sustained and widespread drop in prices that hampers economic activity and threatens job losses. 

While falling prices may sound good for consumers, deflation can trigger a vicious spiral where businesses and households delay purchases, throttling demand and causing companies to lay off workers. 

Such concerns persuaded the European Central Bank to cut interest rates in June and unveil other measures to ease monetary conditions in the single currency area. 

Using the Harmonised Index of Consumer Prices (HICP) - the yardstick used by the ECB - inflation in Germany stood at 0.8% in July, far below the bank's annual inflation target of just below 2%.

French prices plunge in July

French prices dropped sharply in July compared to the previous month, official data today showed, adding to fears of deflation in France and the wider euro zone. 

Prices fell by 0.3% month-on-month in July, the INSEE national statistics office said. On a yearly basis, prices rose by 0.5%, the same as the previous month. 

INSEE said the dip in prices could be partly put down to summer sales. 

Earlier this month, French Prime Minister Manuel Valls said there was a real risk of deflation in the euro zone, sparked by sluggish growth. 

France is struggling economically and politicians are bracing for the publication of second-quarter growth data tomorrow that is expected to show the euro zone's second-largest economy has ground to a halt.