German producer prices posted their biggest annual decline in more than 22 years in June, driven by a sharp drop in energy costs, Federal Statistics Office data showed today.
Producer prices fell by 4.6 per cent year-on-year in June, the steepest decline since December 1986, the Office said. Month-on-month, prices dropped by 0.1 per cent.
A Reuters poll of economists had forecast a fall of 4.1 per cent and month-on-month increase of 0.5 per cent.
Rainer Guntermann, an economist at Dresdner Kleinwort, said that despite the sharp fall, he saw no serious risk of deflation afflicting Europe's largest economy yet.
"We'll probably see an even bigger decline in July, which could be the trough. It'll be a similar story for consumer prices too," he said. "From August or September we should be looking at a gradual normalisation of the situation."
The decline was most strongly influenced by energy price developments, the Office said. These fell by 8.4 per cent compared with June 2008, and by 0.3 per cent on the month.
Excluding energy prices, producer prices were down by 2.8 per cent year-on-year, and unchanged on the month.
The Bundesbank has said German consumer prices - which were flat for the first time in May since the country reunified in 1990 - are likely to turn negative in coming months, but would recover over the course of the year.
"The basic outlook is one of low inflation," said Guntermann. "Only if we end up with a 'double dip' recession - caused for example by a serious crunch - could there be a more serious risk of deflation setting in."