Germany deflates

Germany's inflation rate dropped to the lowest level in almost five years in January...

The rate, when calculated using a harmonized European Union method, declined to 0.9 percent from 1.1 percent in December, the Federal Statistics Office said in Wiesbaden today, confirming a Jan. 28 preliminary estimate. That's the lowest since February 2004. From a month earlier, prices fell 0.6 percent.

"Inflation will continue to decline considerably toward zero within the next half year," said Alexander Koch, an economist at UniCredit MIB in Munich. For the European Central Bank, "inflation expectations are more important. As long as they don't believe a deflationary environment is manifesting itself, they won't be too worried," he said.

Oil prices retreating

The ECB kept interest rates unchanged last week after cutting its main refinancing rate by a total of 225 basis points to 2 percent since early October to counter Europe's worst recession since World War II. President Jean-Claude Trichet signaled the bank may reduce borrowing costs further in March.

The inflation slowdown in Germany, Europe's largest economy, was led by a 15 percent drop in prices for petroleum products from a year earlier, the statistics office said. Oil prices have retreated around 73 percent from their peak of $147 a barrel in July.

Using a national measure, German annual inflation was at 0.9 percent in January. Prices declined 0.5 percent from a month earlier.

Source: www.Bloomberg.com