Import prices strong in deflation! As negative as it hasn’t been in three years

German import prices are strongly deflated for the fourth month in a row. Whereas in April there was still a year-on-year increase of 1.4%, deflation was rapidly on the rise thereafter. Today, the Federal Statistical Office published the import prices for the month of August. Compared to August 2018, they have fallen by 2.7%. This is the strongest fall in prices since August 2016! Even in the less important monthly comparison to July 2019, the decline of -0.6% is disastrous.

In addition to wholesale prices and producer prices, import prices are the main indicators of the final inflationary trend. So, for Germany, weakness is still in the offing, Mrs Lagarde! Import prices for natural gas in particular are pulling the overall average down sharply, as the following chart shows. It goes back to 2015 (black line). But it is not only the energy sector that is pulling the overall average down. Here are some details from the Federal Statistical Office:

The decline in import prices compared with August 2018 was mainly due to the development of import prices for energy. On average, they were 19.6 % lower than in the same month of the previous year (-4.5 % compared with the previous month). Natural gas had the greatest impact on the annual rate of change for energy with a minus of 35.7% (-2.3% compared with July 2019). The import price index excluding energy was 0.4% lower in August 2019 than in August 2018 (-0.2% compared with July 2019). Excluding only oil and petroleum products, the import price index was 1.9% lower than in the previous year (-0.2% compared to July 2019).

Prices for imported intermediate goods were on average 1.5% lower than in August 2018 (-0.2% compared with the previous month). Compared to the same month last year, prices fell for wood and cellulose (-14.6 %), electronic components (-11.3 %), pig iron, steel and ferro-alloys (-8.0 %). By contrast, prices for iron ore (+40.3%) and precious metals and semi-finished products (+30.8%) were significantly higher than in August 2018.

Prices for imported capital goods in August 2019 were 0.2 % lower than in August 2018. They rose slightly by 0.1 % compared with the previous month. While smartphones (-11.1%) and tablets (-7.4%) were cheaper year-on-year, machines (+1.5%) were imported at higher prices than in August 2018.

Import prices for consumer goods (consumer durables and non-durables) rose by 0.9% in August 2019 compared with the same month of the previous year (unchanged from the previous month). Consumables were 1.0% more expensive than in the previous year. Import prices for consumer durables rose by an average of 0.6%.

Imported agricultural goods were on average 2.7 % more expensive than in the previous year (-1.1 % compared with the previous month). While live pigs (+41.8 %) were significantly more expensive than in August 2018, apples (-21.5 %), citrus fruits (-11.0 %) and cereals (-8.9 %) were imported at lower prices.

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