Data from five German states released yesterday showed across-the-board declines in the annual inflation rate in December, largely a result of falling energy prices.
Prices in the big state of North Rhine-Westphalia inched up just 0.1 per cent, down sharply from a 0.7 per cent rise in November.
In Bavaria, prices rose 0.3 per cent year-on-year, down from 0.8 per cent. In Hesse, annual inflation fell to zero from 0.5 per cent in the prior month, while in Baden-Wuerttemberg inflation slowed to 0.1 per cent from 0.5 per cent previously.
The evidence of slowing German inflation came days after ECB President Mario Draghi warned that the downside risks to price stability had risen over the past half year.
He also confirmed the ECB stood ready to introduce new measures if necessary. Speculation is rife that Draghi could unveil plans for mass purchases of eurozone government bonds – a step known as quantitative easing (QE) – to ward off the threat of deflation.
The slowing German inflation data could give him additional ammunition to convince wavering members of the ECB’s Governing Council to back QE.