Prices declined in july for the first time since 1987
For the first time since 1987, life in Germany has become cheaper compared to the same month last year. In July consumer prices fell by 0.5 percent, as the Federal Statistical Office announced. In a first estimate initially even a minus of 0.6 percent was determined. In June the cost of living was up 0.1 percent.
Falling costs for heating oil, gasoline and food are responsible for the price slide. Consumers had to pay 44.7 percent less for light heating oil and 20.0 percent less for fuel than in July 2008. The reason for this is the decline in world market prices for crude oil. A year ago, the record value of almost $ 150 was required for a barrel. It is currently less than half as demand has fallen due to the global recession. Groceries were 2.4 percent cheaper, with the decline in dairy products being particularly large at almost ten percent.
Other prices rose
Excluding energy and food, consumer prices rose 1.4 percent in July. Experts therefore do not speak of deflation. It is characterized by a prolonged price decline across the board. However, due to the weak economy, experts expect prices to remain largely stable well into next year. The recession and rising unemployment make it difficult for companies to enforce higher prices.
Deflation means that the prices of goods and services in an economy are falling. The money increases in value because people can buy more for it. Deflation is the opposite of inflation and is usually the result of falling demand. Consumers spend less money, especially in times of economic downturn. Companies are also holding back and hardly investing any more. This reduces company sales and profits. To sell more, they reduce prices. Deflation is often accelerated by the fact that customers expect prices to fall further. They then postpone purchases and exacerbate the decline in demand.
Further price cuts expected
Experts predict further price declines until autumn. This is also supported by developments in wholesale. There, prices in July fell by 10.6 percent, more than ever since the statistics began in 1968. The development in wholesale is an indicator of future inflation developments because retailers and other buyers pass the price reductions on to consumers with a time lag.