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Economy in Brief

German Prices Fall Yr/Yr Again-But It's NOT Deflation
by Robert Brusca  September 9, 2009

German consumer prices fall Yr/Yr! - The headlines may read that German inflation on the HICP measure is down again Yr/Yr but don’t bite on that headline or on the nuance that it might be deflation time in Europe. Nothing is farther form the truth. First of all, Germany’s headline inflation rose by 0.7% from July even as it fell from August of one year ago. Next, the German domestic inflation gauge rose by 0.5% in the month and is up by a narrow 0.1% Yr/Yr, failing to confirm any downtrend. Moreover, German domestic core (ex food and energy) inflation rose by 0.2% and is up by 1.1% Yr/Yr. Inflation in Germany is tame the core pace is steady, and deflation is nowhere in sight.

The cards are stacked against deflation - For those who might harbor deflation dreams let’s note that we are looking at data from August. In September the German HICP index will rise by 0.1 index points in 2008. So any rise less than 0.1 index points (less than 0.1%) in Sept 2009, will take the headline German HICP lower again. But then from September 2008 to August of 2009 every single month’s headline price index (the index LEVEL) is below that of September 2008. If German deflation is going to set in, that will have to happen on the strength of current prices falling month-by-month in the future not just rising more slowly than they did one year ago.

There is no real deflation trend - Headline HICP inflation is up in eight of the last nine months in terms of its month-to-month changes. There is no real evidence that deflation has taken any hold in Germany. Indeed, the chart on German Yr/Yr headline and core HICP inflation shows that the headline rate, while still negative, has upward momentum building.

Growth is taking root - With German industrial orders up strongly and orders in Europe expanding and revivals in consumer sentiment being experienced, it seems that Europe and Germany are on their way back to better times. While the economies on the continent may continue to fall short of being in full employment, there is no evidence to suggest that prices have much downside risk.

German HICP
  Mo/Mo % Saar % Yr/Yr
  Aug-09 Jul-09 Jun-09 3-Mo 6-Mo 12-Mo Yr Ago
HICP Total 0.7% -0.5% 0.5% 2.6% 0.6% -0.1% 3.3%
  Core #N/A 0.1% 0.2% #N/A #N/A #N/A 1.9%
CPI
All 0.5% -0.4% 0.4% 1.9% 0.6% 0.1% 3.1%
  CPIxF&E 0.2% 0.3% 0.0% 1.9% 1.3% 1.1% 1.8%
Food -0.4% -0.4% 0.5% -1.1% -3.0% -2.7% 7.0%
Alcohol 0.4% -0.8% 0.5% 0.0% -0.7% -1.5% 4.2%
Clothing & Shoes 1.9% -1.5% -0.3% 0.4% -0.4% 1.5% 1.5%
Rent &Util 0.3% -0.4% 0.2% 0.4% -0.7% -0.2% 3.9%
Health Care 0.0% 0.1% -0.1% 0.0% 1.6% 0.7% 1.9%
Transport 2.4% -1.1% 0.8% 8.9% 3.6% -2.0% 4.8%
Communication 0.0% 0.0% 0.1% 0.4% -0.9% -1.6% -3.6%
Rec &Culture 0.5% 0.5% -0.1% 3.6% 2.4% 2.1% 0.4%
Education -0.5% 0.8% -0.2% 0.6% -8.2% -5.1% 3.4%
Restaurant & Hotel -0.1% 0.2% -0.2% -0.4% 0.4% 1.7% 2.4%
Other 0.4% 0.3% 0.1% 3.0% 2.6% 1.8% 1.8%
Diffusion -- -- -- 81.8% 54.5% 18.2% --
Type: Diffusion: Current Compared to 6-mo 12-mo Yr-Ago --
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