German producer prices post record fall

German producer prices posted their biggest annual fall in 60 years in July due to a sharp decrease in energy costs, but economists said the downward trend was unlikely to last and played down fears of deflation. The Federal Statistics Office said on Wednesday that prices fell by 7.8 percent from July 2008, the sharpest drop since the founding of the post-war Federal Republic in 1949.
"This means in July 2009 prices were back roughly at the same level as they were in May 2007," the Office said. Month-on-month, prices fell by 1.5 percent. In a poll last week, economists surveyed by Reuters had forecast producer prices would fall in July by 0.2 percent month-on-month, and by 6.5 percent year-on-year. Excluding energy, prices fell 0.2 percent month-on-month and by 3.6 percent on an annual basis.
Andreas Rees, an economist at UniCredit in Munich, said record lows in capacity utilisation had also put pressure on prices, but that the downward trend was unlikely to last. "Although until recently the pressure on German companies cutting prices was high, we do not think that this is the start of a deflationary spiral," he said.
"Instead, it is very likely that capacity utilisation will surge in coming months, since new orders already rebounded drastically. From autumn 2009 onwards, yearly inflation rates should leave negative territory." German consumer prices declined by 0.5 percent on the year in July, the first annual fall since reunification in 1990. In the 16-nation euro-zone they fell by 0.7 percent year-on-year last month.
But recent German data has pointed to an economic recovery, which economists expect to push prices higher. German manufacturing orders rose at their fastest pace in two years in June, the latest month for which data is available. Exports, for years the mainstay of the German economy, posted their biggest increase in almost three years in the same month.
Europe's largest economy exited recession in the second quarter, posting quarterly growth of 0.3 percent, according to preliminary data from the Federal Statistics Office. On Tuesday, hopes for the economy were raised further when the ZEW economic research institute's gauge of analyst and investor sentiment for Germany rose to its highest level in more than three years in August. A breakdown of the latest price figures showed the cost of light heating oil was down by 49.8 percent on the year in July. Diesel fuel was 30.9 percent cheaper, and petrol 17.2 percent.