German producer prices slip into deflation in August

Data released by German statistics office Destatis on Tuesday showed that producer prices in Germany slipped into deflationary territory in August for the first time in six months. On the month German producer prices posted a decline of -0.1 percent missing expectations for an unchanged reading of 0.2 percent measured in July.

On a year-on-year German producer prices contracted a -1.6 percent from -2 percent in July, according to Destatis. While slowing, weak factory gate prices still indicate that Germany is experiencing little inflationary pressure.

German manufacturers saw a 5.5 percent fall in energy prices in August compared to the same month last year, while the price of intermediate goods fell by 1.6 percent. Consumer goods however helped push up the index, rising 1.2 percent, with capital goods up by 0.6 percent.

Today's weak producer price data adds to the recent flow of disappointing figures which include industrial production and trade data. Significant deterioration in Germany is counteracting the positivity generated by reports from other nations such as Spain and France.

Bundesbank President Jens Weidmann also warned that the European Central Bank (ECB) needed to normalise monetary policy soon lest the current low interest environment cause lasting damage.

‘After robust growth in the spring, Germany’s economy is likely to expand somewhat more slowly in the third quarter of 2016. This is in part reflected in the significant deterioration in corporate sentiment. Economic indicators at the start of the quarter have been very weak, particularly in industry.’ said Weidmann.