German headline inflation slipped into negative territory again in September. On a year-on-year basis, inflation fell to -0.2 percent from 0.0 percent in September. The fall is partially due to lower energy prices, which fell 7.1 percent year-on-year. Meanwhile, core inflation rate is expected to have eased to 0.6 percent from 0.8 percent, based on the results of the state statistical offices.
This signifies that the core rate has eased slightly below the level of July. This can be largely seen as a sideways movement, especially since significant price fluctuations have been seen in some cases for individual groups of goods and services, said Commerzbank in a research report. The prices of some sports, leisure and recreational services have surged.
The underlying inflation is expected to remain at around the current level unit the end of 2020. From January 2021 onwards, when the regular VAT rates come into force again, it is possible to jump by about 1 percentage point. In the second half of 2021, it might surpass 2 percent because of the base effect of the temporary VAT cuts.
“For our forecast of euro zone inflation, the current figures from Germany indicate a downward risk. We therefore expect the euro zone inflation rate published tomorrow to fall slightly to -0.3 percent (August: -0.2 percent). The core inflation rate should remain unchanged at 0.4 percent”, added Commerzbank.
