German producer prices continue to rally in June, decline on year

Producer prices in Germany during the month of June continued to trend upwards, equaling the strongest pace of gains for two years. However, producer price inflation declined on an annual basis. Further, the short-run trend will hold importance given the fresh deflationary impetus from Sterling’s decline and any fresh declines would risk fresh downward pressure on consumer prices.

Germany’s producer price index (PPI) rose 0.4 percent in June, the same rate of increase for May, while in annual terms, there was a decline of 2.2 percent compared with 2.7 percent previously. The underlying index registered a 0.2 percent monthly increase for a 0.7 percent annual decline from 0.8 percent previously.

Further, energy prices rose 1.3 percent for the month, although there was still a 6.5 percent annual decline. Prices of intermediate goods fell by 2.0 percent over the year and non-durable consumer goods fell by 0.2 percent, while prices of durable consumer goods rose by 1.3 percent. There were monthly increases across all sectors as underlying downward pressure continued to ease.

This shows that Germany is probably recovering from the pressures of deflation. However, there will be fresh concerns over another round of deflationary pressures following the latest Euro surge against Sterling.

Meanwhile, gains in global crude oil prices have stalled, which is likely to weigh on producer prices. If production prices decline, that will definitely hit consumer prices as well, raising additional easing pressures on the European Central Bank.