German inflation at 5-year low

Europe’s largest economy has seen the rate of inflation fall this January to its lowest level for over 5 years, due to the impact of the recession which has resulted in a fall in oil prices.

According to the Federal Statistics Office in Wiesbaden, using the harmonised European Union method, inflation fell from 1.1 percent to 0.9 percent in December which is the lowest rate since February 2004.

Within the last quarter, mineral oil product prices fell by 15.4 percent compared to last year, but in general energy products saw a 2.3 percent increase between December and January and so for motorists, this included a 2.2 percent increase in petrol prices.

Electricity was up 3.2 percent compared to last month, and food prices also increased on an annual basis which is a further indication inflation may be more resistant than some analysts predict.

This latest fall matched previous estimates and according to Alexander Koch, an economist at UniCredit MIB, inflation will continue to fall heading to zero by the beginning of 2010, although the threat of deflation is there, Koch urges caution but not to be too worried.

Even though Europe has entered the worst recession since World War II, the European central bank president Jean-Claude Trichet announced that interest rates are to remain unchanged.

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