Inflation down in 6 German states in January, pointing to national decline

Inflation fell in six economically important German states in January, preliminary data showed on Wednesday, suggesting that national inflation has resumed its downward trajectory and raising hopes for a decline in eurozone inflation.

The inflation rate in North Rhine-Westphalia, Germany’s most populous state, fell to 3.0 per cent in January from 3.5 per cent in December.

In Bavaria, the rate fell to 2.9 per cent from 3.4 per cent in December, while declining to 3.7 per cent in Brandenburg from 4.5 per cent, to 3.5 per cent in Saxony from 4.3 per cent, to 3.2 per cent in Baden-Wuerttemberg from 3.8 per cent, and to 2.2 per cent in Hesse from 3.5 per cent the previous month.

Economists will pay close attention to national inflation data later on Wednesday, as Germany and France publish their figures before expected eurozone inflation data on Thursday.

French figures showed EU-harmonised inflation falling to 3.4 per cent in January from 4.1 per cent in December.

Eurozone inflation is expected to dip to 2.8 per cent in January from 2.9 per cent the month before, according to economists polled by Reuters.

“I am now convinced that we have tamed that greedy beast,” European Central Bank (ECB) policymaker Joachim Nagel said on Tuesday.

The European Central Bank has raised interest rates by the most in the euro’s history to bring inflation down from double-digits. The bank is now expected to start cutting borrowing costs in the spring.

In the German states, cheaper energy was responsible for the fall in inflation, offsetting the end of several anti-crisis policy support measures that pushed inflation higher.

According to Deutsche Bank economists, the end of energy price brakes, raising the VAT rate from 7 per cent to 19 per cent for gas and district heating and for food at restaurants, and lifting the national carbon price to 45 euros per tonne from 30 euros might together add 0.6 percentage points to the January reading.

Economists polled by Reuters forecast Germany’s harmonised inflation at 3.2 per cent in January, down from 3.8 per cent in December.

“In light of the uncertainty with regards to the exact pass-through of the ending of the anti-crisis policy support measures on consumers, we reckon that the January print has the potential for a larger degree of upward and downward surprises,” Deutsche Bank’s Sebastian Becker said.

Meanwhile the German retail sales fell in December by 1.6 per cent compared with the previous month, data showed on Wednesday.

Analysts polled by Reuters had predicted a 0.7 per cent increase. The federal statistics office publishes more details on its website.

Meanwhile the number of unemployed people in Germany fell marginally in January, Labour Office figures showed on Wednesday, defying expectations of an increase.

The Federal Labour Office said the number of people out of work decreased by 2,000 in seasonally adjusted terms from December to 2.694 million. Analysts polled by Reuters had expected the total to rise by 11,000.

“Employment and demand for labour are constant, meaning that labour is stable at the start of the year despite the ongoing economic weakness,” said Andrea Nahles, chair of the Federal Employment Agency.

The seasonally adjusted jobless rate remained unchanged at 5.8 per cent.

There were 699,000 job openings in January, 66,000 fewer than a year ago, the Federal Labour Office said.

“It is pleasing that the number of registered vacancies is at a high level of just under 700,000 and that companies and businesses are still looking for staff,” Labour Minister Hubertus Heil said.

Although the job market showed resilience in January, some surveys point to a deterioration in the coming months, as the economic slowdown takes its toll on employment with a lag.

“Manufacturing employment is falling steadily, and the Purchasing Managers’ Indexes

indicate that the job market in services is now losing steam too,” said Melanie Debono, senior Europe economist at Pantheon Macroeconomics.

German inflation eased slightly further than expected in January to 3.1 per cent, preliminary data from the federal statistics office showed on Wednesday.

German consumer prices, harmonised to compare with other European Union countries, had risen by 3.8 per cent year-on-year in December.

The statistics office gives more details on its website.