Low Germany inflation sparks hopes of further cut in ECB rates

Low Germany inflation sparks hopes of further cut in ECB rates

New data has shown that inflation in Germany, Europe’s top economy, slowed to its lowest level for 18 months in June, sparking speculation that there could be a further cut in euro zone interest rates – below the current historic low of 1%.

The annual rate of inflation in Germany stood at 1.7% in June, the lowest level since December 2010, from 1.9% in May, the national statistics office Destatis said.

On a monthly basis, the cost of living in Germany declined by 0.1% in June from May, the statisticians calculated.

Using the Harmonised Index of Consumer Prices, the European Central Bank’s inflation yardstick, the cost of living in Germany rose 2% on a 12-month basis in June, also slower than the 2.2% pace seen in May. The ECB defines price stability as increases in HICP of close to but just below 2%.

As a result, analysts believe the central bank may reduce borrowing costs from their current historic low of 1% in order to give the single currency area a much-needed boost as the debt crisis continues to intensify.

Preliminary inflation data are calculated using consumer price data for six of Germany’s 16 federal states. Final data, based on statistics for all 16 states, are scheduled to be published on July 11.

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