The German inflation rate left the negative territory in August, rising slightly from -0.1 percent to 0.0 percent. The core inflation rate excluding energy and food rose slightly. The reduction in the VAT rate had pushed the inflation rate into negative territory in July. In August, it has now risen slightly again and was exactly on the zero line. The slightly smaller fall in energy prices and the somewhat softer rise in food prices more or less balanced each other out.
The decline is mainly due to the lower VAT. However, it is difficult to say how much this has depressed prices and how consumer prices would have developed without this tax cut, noted Commerzbank in a research report. If the tax cut had been passed on the consumers in full extend, the overall price index might have been down 1.6 percent, stated Commerzbank.
Even if the German inflation rate has risen a bit, the current figures are consistent with projection that the inflation rate in the euro area dropped from 0.4 percent to 0.0 percent in April. This is because the July figures for the euro area were distorted upwards by the fact that summer sales in Italy and France did not begin in July. This effect possibly no longer played a role in August. The core inflation rate in the euro area is thus likely to have dropped from 1.2 percent to 0.6 percent, added Commerzbank.
