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German inflation hits new four-year low

Inflation in Europe's largest economy is rising at its slowest pace in four years. Fears of deflation in the eurozone abound.

Inflation in Germany is rising at its slowest pace in more than four years, preliminary statistical data showed Wednesday.

Inflation dropped this month to 0.8 percent on the year, the lowest it has been since February 2010, Germany's statistics office, Destatis, said.

The drop is likely to stoke fears of deflation in the 18-member eurozone - where inflation dipped to 0.5 percent in June - as a sustained drop in prices constrains economic growth and puts jobs at risk.

"The risk of a damaging bout of deflation remains very much a region-wide phenomenon," Capital Economics, an independent research company, said in an analysis.

The danger of falling prices may seem counterintuitive to consumers, but deflation can prove catastrophic for an economy.

Businesses and households may delay purchases on the expectation that prices will sink even further, causing demand to plummet and companies to lay off workers.

It was an apprehension over the eurozone's low inflation rate that drove the European Central Bank to cut its interest rates in June to ease monetary conditions.

cjc/uhe (AFP, AP)

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