VAT cut pushes German inflation into negative territory

German consumer prices, harmonised to make them comparable with inflation data from other European Union countries, fell 0.1% year-on-year after stagnating in the previous month, the Federal Statistics Office said. This compared with a Reuters forecast for 0.0% and was the first negative reading since May 2016.

German annual consumer prices fell for the first time in more than four years in August due to a VAT cut as part of the government's stimulus push to help Europe's largest economy recover from the coronavirus shock, data showed on Monday. German consumer prices, harmonised to make them comparable with inflation data from other European Union countries, fell 0.1% year-on-year after stagnating in the previous month, the Federal Statistics Office said.

This compared with a Reuters forecast for 0.0% and was the first negative reading since May 2016. "The inflation rate is influenced, among other things, by the VAT cut that came into effect on July 1, 2020," the office said in a statement.

On the month, harmonised prices fell by 0.2%. A Reuters poll had predicted an unchanged reading. The European Central Bank has a target of keeping inflation close to but below 2% in the euro zone.