German prices remained unchanged in January, after accelerating in the last quarter of 2009. Inflation shifted from -0.30% in September to 0.00% in October, then 0.40% in November reflecting the improvement seen in the economy starting from the second quarter.
The gigantic economy in the euro area left the recession in the second quarter, when it grew by 0.4% followed by 0.7% expansion in the third quarter. The stimulus measures adopted by both ECB and the German government boosted growth and prices.
Policy makers at the ECB lowered interest rate to 1% and introduced 60 billion euros plan spent on purchasing euro-denominated bonds. On the other hand, Chancellor Angela Merkel’s government is spending near 85 billion euros on infrastructure projects, in addition to the 2,500-euro payment junking old cars and buying new ones as well as tax cuts.
In January, inflation lingered at 0.8% on the year and -0.6% on the month, inline with both prior and estimated readings as clothes prices dropped and households are concerned with the high unemployment rate. German jobless rate inclined to 8.2% in January from 8.1%, recorded in the last 3 months last year.
Germany's jobless rate is expected to climb to 9.2% in 2010, according to the Organization for Economic Cooperation and Development announced in November.
Moreover, oil prices slid to a low of $72.40 a barrel, compared with a high of $80.00 reached in December. The depreciation of the euro against the dollar sapped demand on all dollar-denominated commodities. The 16-nation currency started a downside trend against the dollar staring from December and is continuing its fall on renewed fears, regarding debt woes in Greece and other European economies. Trichet announced that price pressures will remain subdued and inflation expectations are anchored.
The data released recently from Germany is mixed, which is raising concerns that recovery may be sluggish this year. German manufacturing inclined to 53.7 in January from 52.7 in December; while services reached 52.5, which is lower than December's reading of 52.7. Axel Weber, policy maker at the ECB, predicts recovery to be weak this year, where real recovery will take place next year.
Trichet mentioned that the economy will expand at a moderate pace in 2010 in February, and recovery will be "uneven" as factors supporting the economy, such as activities will be affected by the balance sheet adjustment.
Other data released today from Germany, showed that trade surplus narrowed to 13.5 billion euros in December, compared with the revised 17.2 billion euros. Imports inclined to 4.5% from the revised -6.2%; whereas exports rose to 3.0% from the revised 1.1%. Current account, however, showed a widened surplus to 20.6 billion euros relative to the revised 17.8 billion euros.
