Germany’s May inflation turns negative for first time in 22 years

Inflation in Germany, Europe's biggest economy, turned negative for the first time in 22 years in May compared to the same month last year, preliminary official figures showed from the German Federal Statistical Office (GFSO).

The GFSO said the inflation rate fell to zero in May from 0.7 per cent in April. Compared with April, May consumer prices fell 0.1 per cent and the data are based on preliminary results from six federal German states.

Germany has not seen negative inflation since the reunification between West and East Germany in 1990, nor in the past 22 years; pre-unification, West Germany recorded zero inflation in May 1987.

Analysts had expected in May, an inflation of 0.2 per cent on a 12-month basis. However, the final figures for May 2009 will be released on June 10. 

The office maintains that the decrease is a result of sharp rise in oil products in the first half of 2008, which has dropped sharply since then causing inflation to plunge. Commodity prices too have fallen sharply adding to inflation falling to zero figures.

Analysts are of the opinion Germany's inflation will tumble to negative figures in the first half of 2008, before picking up again in the second half of the year.

The German inflation figures strengthen the prospect of the May euro zone inflation figures to be around zero which is due tomorrow, adding pressure on the European Central Bank's struggle to deal with the harsh recession facing European countries.

UK retail prices index (RPI) plummeted into negative territory, registering a drop of 1.2 per cent in the year to April. (See: Inflation in UK falls to lowest since 1948)

Europe's GDP is estimated to decline by 2.5 per cent in the first quarter of 2009 in both the euro economies comprising the 16 European economies (EA16*) and the wider 27-country European Union (EU27), compared with the previous quarter, according to  to the flash estimates published by Eurostat, the statistical office of the European Communities. (See: Europe's estimated GDP to decline 2.5 per cent in 1Q - Eurostat)

European economies have shown a decline in the first quarter of 2009 and are likely to be under the threat of deflation if inflation rates continue to fall, further weakening their prospect  of economic recovery.