German Inflation Rate Dropped to Lowest in 17 Months

Germany’s inflation rate dropped to the lowest level in 17 months in June as energy prices declined.

Inflation, calculated using a harmonized European Union method, eased to 2 percent, the lowest since January last year, from 2.2 percent in May, the Federal Statistics Office in Wiesbaden said today, confirming a June 27 estimate. In the month, consumer prices fell 0.2 percent.

Oil prices have dropped 22 percent since the end of February and are 10 percent lower than a year ago. The sovereign debt crisis is also damping economic growth across the 17-nation euro area, prompting the European Central Bank to last week cut its benchmark rate to a record low of 0.75 percent. German unemployment at a two-decade low and rising wages are helping Europe’s largest economy to weather the turmoil.

“The crisis and the drop in oil prices mean that any inflation threats have been banished in Germany,” said Alexander Koch, an economist at UniCredit Group in Munich. “At the same time, the strong labor market and rising wages mean that the inflation rate is unlikely to drop as much as in other euro-area countries.”

ECB President Mario Draghi told lawmakers on July 9 that euro-area inflation will drop below the bank’s 2 percent limit in 2013 from 2.4 percent currently.

Non-harmonized German inflation slowed to 1.7 percent in June from 1.9 percent, with prices declining 0.1 percent in the month, the statistics office said.

To contact the reporter on this story: Gabi Thesing in London at gthesing@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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