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German inflation falls deeper into negative territory after VAT cut

German annual consumer prices fell further in November, pushed down by a VAT cut introduced as part of the government’s stimulus push to help Europe’s largest economy recover from the coronavirus shock, data showed.

Consumer prices, harmonised to make them comparable with inflation data from other European Union countries, fell 0.7% year-on-year after shrinking by 0.5% in the previous month, the Federal Statistics Office said.

November’s preliminary data compared with a Reuters poll forecast of a 0.5% decline.

“The inflation rate is influenced, among other things, by the reduction in value-added tax that came into force on July 1, 2020,” the office said in a statement.

On the month, harmonised prices fell 1.0%. The Reuters consensus forecast was a fall of 0.8%.

The European Central Bank, which has a target of keeping inflation close to but below 2% in the euro zone, is preparing a new stimulus package to help cushion the impact of the coronavirus pandemic.

The ECB’s chief economist warned last Thursday that accepting “a longer phase of even lower inflation” would hurt consumption and investment as well as cementing expectations of low price growth in the future.

The euro zone’s central bank has kept the money taps wide open for years and promised to announce further stimulus, probably in the form of even more bond purchases and subsidised loans to banks, at its Dec. 10 meeting.

Source: Reuters (Reporting by Paul Carrel; editing by Thomas Seythal and Kevin Liffey)

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