German Inflation Unexpectedly Slows as ECB Prepares Meeting

  • Inflation rate falls to 0.3% vs estimated increase to 0.5%
  • Euro-area consumer-price report to be published on Wednesday

German inflation unexpectedly slowed in August in a sign that the European Central Bank may need to do more to meet its goal for price growth in the 19-nation euro area.

The rate fell to 0.3 percent from 0.4 percent the previous month, the Federal Statistics Office in Wiesbaden said on Tuesday. Economists in a Bloomberg survey predicted a pick-up to 0.5 percent. Prices fell 0.1 percent from July.

The report from Europe’s largest economy is bad news for ECB President Mario Draghi, who committed to add stimulus if low inflation in the region proved more stubborn than anticipated. Professional forecasters surveyed by the central bank have already cut their outlook for growth and inflation in the next two years. The ECB will publish its own projections on Sept. 8, when it announces its policy decision.

“The damping effect on inflation is coming mainly from energy prices, which
are always difficult to forecast,” said Jens Kramer, an economist at NordLB in Hanover. “The ECB is still far, far away from its goal and this gives them arguments to stick to their expansionary policy” or even increase stimulus, he said.

Separate data showed Tuesday that euro-area economic confidence worsened in August, suggesting that the reverberations of Britain’s decision to leave the European Union may finally be feeding through to the economy.

Before the German data, economists estimated that euro-area inflation probably accelerated to 0.3 percent in August from 0.2 percent the previous month, leaving it well below the ECB’s target of just under 2 percent. Eurostat will release preliminary figures on Wednesday.

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