German inflation slumps in October

2 min

Frankfurt am Main (AFP)

Inflation in Germany slid in October, official data showed Monday, underscoring the challenge of the European Central Bank reaching its price growth target.

Prices increased 1.6 percent year-on-year in October, federal statistics authority Destatis said in preliminary figures, slightly short of forecasts from analysts surveyed by Factset.

Measuring using the harmonised index of consumer prices, the ECB's preferred yardstick, produced an even lower figure of just 1.5 percent.

Inflation in Europe's powerhouse economy had been stable at 1.8 percent in August and September, close to the target of just below 2.0 percent that central bank governors have pushed for with massive interventions in recent years.

But a sharp fall in energy price growth -- one of the most volatile elements of the "basket" of goods used to measure inflation -- from 2.7 percent in September to 1.2 percent in October helped slam on the brakes.

Prices for services and rental costs for housing also contributed to the slowdown, while food was the only item where the pace of inflation picked up.

ECB President Mario Draghi warned Thursday that inflation would slow in the coming months before picking up again gradually, as he gave a press conference explaining the bank's decision to slash its bond-buying programme.

Along with cheap loans to banks and low interest rates, the scheme is designed to pump cash through the financial system and into businesses and households, powering the economy and pushing up inflation.

Steady price growth is seen as vital as it wards off deflation, or a spiral of decreasing prices that encourages people to hoard money rather than make purchases, in turn hobbling the economy.