German producer price inflation fell in December to less than half the record hit last summer and the lowest rate in more than a year, providing further evidence that cost pressures in the eurozone’s largest economy are receding.
The annual rate of producer price growth slowed to 21.6 per cent last month, down from 28.2 per cent in November and the lowest level since November 2021, the statistics office said.
While it missed analysts’ expectations of a decline to 20.8 per cent, Friday’s Destatis figure was way off the all-time high of 45.8 per cent hit in August and September.
Compared with November, prices of industrial products were down 0.4 per cent.
“We now see clear and strong disinflationary pressures in these data,” said Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics.
The lower rate eases the pressure on businesses and supports the view of a further slowdown in inflation in the coming months. Last week, the Munich-based Ifo index also reported a sharp drop in the proportion of companies planning to raise their prices.
“This means that increases in producer and consumer prices are likely to gradually slow down in the months ahead,” said Timo Wollmershäuser, head of forecasts at Ifo.
German consumer price inflation slowed to 8.6 per cent in December from a peak of 10.4 per cent in October, meaning household budgets and business revenues go further. This comes as official figures last week suggested that the country might have avoided falling into a recession this winter.
Energy prices were the main driver of the downward trend in producer prices, with inflation in the sector declining to 41.9 per cent in December from 140 per cent in August. Energy prices fell by 1 per cent between November and December, mainly due to a 2.2 per cent drop in natural gas prices.
“Wholesale gas and electricity prices point to another large fall of German producer prices in January,” said Oliver Rakau, chief German economist at Oxford Economics. He added that the decline in futures prices “should suffice to make the expected industrial downturn more shallow”, particularly in energy-intensive sectors.
However, producer price inflation, excluding energy, only stagnated after edging lower in the previous months. It even rose in some cases, such as durable goods.
The prices for durable goods were 11.9 per cent higher in December 2022 than a year earlier, with furniture 14.7 per cent more expensive than last year, according to Destatis.
For businesses “a backloaded rise in wages could well offset part of the fall in energy and other commodity costs this year,” warned Rakau.
This indicates that “underlying pressures for core goods consumer prices remain firm and, from the point of view of the European Central Bank, uncomfortably high,” Vistesen added.
The figures follow warnings on Thursday from ECB president Christine Lagarde that the institution’s monetary policy of high interest rates is to “stay the course” as inflation is “way too high.”
On average for 2022, producer prices for commercial products rose 32.9 per cent compared with 2021. That was the highest annual average change since the survey began in 1949.
Source: Economy - ft.com
