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Business

German inflation slows to zero amid oil price slump

Falling energy prices brought inflation in Germany back down to zero percent in February, adding pressure on the European Central Bank (ECB) for more stimulus to avert possible deflation in the wider euro area.

Price increases in Germany ground to a halt in February as the country's consumer price index slumped to zero, in contrast to a slight plus of 0.5 percent in January, the German statistics office, Destatis, unveiled Friday.

Using the European Union's Harmonised Index of Consumer Prices (HICP), prices actually contracted this month, with the price index dropping by minus 0.2 percent after a 0.4 percent plus in the previous month.

The last time the German HICP index was in negative territory was in September 2015, when it reached minus 0.1 percent. And the last time it was lower than minus 0.2 percent was in January 2015, when it stood at minus 0.4 percent.

The data were still only preliminary, calculated from consumer price data for six of Germany's 16 regional states. Final data based on all 16 states are scheduled to be published on March 11.

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Deflation fears

The inflation rate in Europe's biggest economy is way below the European Central Bank's target of close to but just under 2 percent - the threshold at which ECB regards price development as healthy for economic growth.

Since inflation rates in Germany and elsewhere in the eurozone have remained stubbornly low for a few years now, the ECB has cut interest rates to historic lows, and launched other monetary measures to kickstart prices. Among them is a controversial program to buy sovereign bonds of eurozone nations on secondary markets, known as quantitative easing (QE), which was rolled out by the ECB a year ago.

The 60-billion-euro-a month ($65-billion-a-month) bond and asset purchases initially brought prices up slightly, but the economic slowdown in China and depressed oil prices have pushed inflation rates back down again in recent months.

Analysts said German inflation data would fuel speculation that the ECB will launch new stimulus measures when its governing council meets on March 10.

IHS Global Insight analyst Howard Archer told the news agency AFP that pressure for ECB stimulus had been "ramped up" by February eurozone consumer price data, which suggested a "highly probable" return to deflation in the euro area.

"We expect the ECB to trim its deposit rate by a further 10 basis points to minus 0.4 percent at its March meeting, and believe it could very well step up its monthly purchase of assets, perhaps by 20-30 billion euros from the current level of 60 billion euros," he added.

In its fight against deflation, the ECB has resorted to negative interest rates, meaning it charges commercial banks for keeping money with the central bank instead of lending it to the real economy.

uhe/nz (AFP, dpa, Reuters)

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