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Inflation

German inflation slumps to four-year low

German inflation has slowed to its lowest rate since 2010 as prices for energy and car fuels fell in May. It is likely to add to pressure on the European Central Bank to cut interest rates even further.

The German annual inflation rate fell to 0.9 percent in May, down from 1.3 percent recorded in the previous month of April, according to preliminary data released by the country's statistics office, Destatis, on Monday.

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, the statisticians said, which had been 0.8 percent lower than in May 2013. 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 even slowed to 0.6 percent in May from 1.1 percent in April. This is markedly lower than what the European Central Bank (ECB) considers price stability, which would require a rate of around 2 percent.

Even though final data on German inflation will not be published before June 13, the preliminary figures are likely to stoke fresh fears about deflationary pressures mounting in the 18-nation eurozone.

Deflation is bad for economic development as it can trigger a downward spiral of less consumer spending in anticipation of prices falling even more, lower business investment, fewer jobs and slower growth.

Economists said falling inflation in Germany might pile further pressure on the ECB to cut its interest rates further at a monthly policy meeting on Thursday. The move would ease monetary supply in the currency area and, hopefully, boost inflation.

uhe/ng (dpa, Reuters, AFP)

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