Germany's low inflation hits euro zone

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Germany's low inflation hits euro zone

Inflation in Germany hits lowest level in January From June 2021. This situation has probably led to new calls for the European Central Bank (ECB) to start cutting rates.

Consumer prices in January were 2.9% higher than the same month a year earlier, compared with 3.7% in December, measured by national standards. The low rate was due to energy prices, which were 2.8% lower than the same time a year earlier, despite the introduction of the new carbon tax. By December, inflation had improved due to a resurgence in energy costs.

Meanwhile, food prices declined to 3.8% from 4.5% in December, while goods inflation fell to 2.3% from 4.1% the previous month.

Services inflation rose to 3.4% from 3.2% in January, but the core inflation rate, which excludes volatile food and energy prices and is more representative of underlying inflation trends, fell to 3.4% in January from 3.5% in December.

why is it important? German inflation makes key contribution to eurozone data, which will be published this Thursday. On an EU-harmonised basis, German inflation fell more than the national rate to 3.1% from 3.8% in December, below consensus expectations of 3.4%.

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This may further increase the demand for rate cut by ECB. Currency markets are currently expecting the first rate cut in April, although Bank President Christine Lagarde said at the last monetary policy meeting that it was too early to discuss a cut.

In other data released this week, French inflation fell to 3.4%, but Spanish inflation unexpectedly rose to 3.5%. With inflation slowing, the ECB is expected to cut its key interest rate later this year, which will also boost growth by easing pressure on household spending and business investment. Clear signs of a recession in the euro zone’s largest economy could also weigh on the bank’s decision-making.

German GDP declined by 0.3% in the last quarter of the year high interest rates Amid declining economic growth as well as low demand for Germany’s main manufactured products. And although there has been a slight increase in services inflation, the decline in core inflation will be welcomed by those who argue that the ECB should start cutting rates as soon as possible.

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At a general level, the European economy remained stable in the last three months of last year, The gap is widening between the fast-growing US economy And the European continent is rapidly falling behind. New economic data showed that higher borrowing costs had exacerbated the first effects of higher energy prices following Russia’s invasion of Ukraine.

In contrast, the US economy has expanded strongly and enjoyed its strongest performance relative to the eurozone since 2013, with the exception of the COVID-19 pandemic.

One factor that threatens to put further pressure on the European economy is its proximity to geopolitical hotspots. Russia’s war against Ukraine could cause energy prices to skyrocket in 2022, hurting European producers. The United States, as an energy producer, was relatively unaffected, and its natural gas industry even benefited when it became Europe’s energy supplier of last resort after Russia cut off gas supplies.

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Now, the crisis in the Middle East, which has paralyzed cargo traffic across the Red Sea, is raising costs for European importers and disrupting European supply chains. The United States has also not suffered as much there, because it has alternative routes for goods from Asia.

Europe’s Stoxx 600 index rose 12.64% last year, a little more than half the performance of the S&P 500, which rose 24.23% over the same period. Eurozone’s gross domestic product was unchanged in the last three months of last year, the European Union’s statistics agency Eurostat said on Tuesday. This was followed by a decline in the three months till September. For 2023 as a whole, Eurostat projects growth of only 0.5%, while the US economy grew by 2.5 percent.

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