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Inflation

German inflation hits four-year low

Prices in Germany continue to climb ever more slowly, causing joy among consumers but concerns among economists. As the German inflation rate drops to a 4-year low, fears of growing deflationary pressure are mounting.

The German annual inflation rate fell to 0.9 percent in May, down from 1.3 percent the month before, according to final data released Friday by the country's statistical office, Destatis.

It is the lowest level of annual inflation since 2010, Destatis noted, following rates of 1 percent in March and 1.2 percent in February this year.

The decline was caused by falling prices for energy and car fuels, which had been 0.8 percent lower than in May 2013, the statisticians said. Food prices rose less significantly than in previous months, climbing by only 0.5 percent year-on-year.

Using the EU standard measurement, the Harmonized Index of Consumer Prices (HICP), annual inflation in Europe's biggest economy slowed to 0.6 percent in May from 1.1 percent in April.

That figure is markedly lower than what the European Central Bank (ECB) considers necessary to ensure price stability, which would require a rate of around 2 percent.

Inflation is unusually low across the 18-nation eurozone, fueling concerns the region could be on the brink of deflation, which is a sustained and widespread drop in prices.

Deflation - the danger of falling prices

While falling prices may sound good for consumers, deflation is actually dangerous for the economy because it can trigger a vicious spiral where businesses and households delay purchases, thus throttling demand and causing companies to lay off workers.

Such concerns persuaded the European Central Bank to cut interest rates to historic lows at its monthly policy meeting last week and launch a series of other measures to ease monetary conditions in the single currency area.

uhe/cjc (AFP, dpa)

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