France in deflation as German prices rebound | Business| Economy and finance news from a German perspective | DW | 12.03.2015
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France in deflation as German prices rebound

Prices in Germany and France developed out of sync in February, reflecting a gap in growth levels for Europe's two largest economies. While Germany's recovery is gaining momentum, France looks increasingly stuck.

The French economy remained stuck in deflation in February as consumer prices fell by 0.3 percent compared to the same month a year earlier, according to official figures released Thursday by the national statistics office.

The figure followed a decline in annualized prices by 0.4 percent in January - the first time in five years that the French economy had slipped into deflation.

Since the end of 2014, prices have been falling in most countries using the euro currency, raising the pressure on the European Central Bank (ECB) to act in order to reach its target of keeping inflation "close to, but below" two percent.

On Monday, the ECB launched an huge bond-buying program to the tune of 60 billion euros a month. Its total value is expected to reach 1.1 trillion euros ($1.2 trillion) by September 2016.

The audacious and controversial scheme is intended to ward off deflation and stimulate growth in the eurozone.

Many economists fear persistent deflation as much as - if not more than - rampant inflation, because consumers tend to put off purchases in the belief they may be cheaper in the future. This leads to a spiral of ever weaker demand, slowing the economy and pushing up unemployment.

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German prices move up

While prices are falling in France amid stagnating economic output and rising unemployment, they were back in positive territory in Germany, rising 0.1 percent in February.

Official data released by the German statisitics office, Destatis, on Thursday, showed a rebound from a drop by 0.4 percent in January. Unlike in France, the economic recovery in Germany is expected to gather strong momentum over the year, with higher consumer spending set to boost inflation.

In recent months, deflationary pressure in the eurozone has increased mainly due to falling oil prices that have led to lower costs for fuels and energy.

uhe/pad (dpa, AFP)

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