German inflation falls

German inflation continues to fall after peaking in May

German consumer prices fell by 0.2% in August, leaving the annual inflation unchanged and leaving more breathing space for European interest rate cuts.

The figures released by the Federal Statistics Office mean the annual inflation rate stabilised from July, when consumer prices were unchanged on the month but rose 2.6% on the year.

Annual inflation is predicted to continue slowing from its eight year high of 3.5% in May.

Fears of rising inflation are the central concern of the European Central Bank (ECB), which sets interest rates across the 12-country eurozone.

The size of the German economy means that its health or otherwise is a key factor in interest rate decisions.

The ECB made its second rate cut of the year last week and president Wim Duisenberg said it was now safe to follow other central banks in lowering rates "without endangering the achievement of price stability in the near future".

Rate cuts welcome

The ECB rate cut was welcomed by the German government which recently revised down its growth estimates to below 2% for this year, with some analysts forecasting as little as 1%, after 3% growth last year.

The inflation figures come after Germany reported a surprise rise in business confidence in July and falling unemployment in August for the first time since December last year.

The price falls were mainly due to the lower cost of heating oil and other fuels.

Euro inflation

Meanwhile, only a few German retailers have been raising their prices in the run up to the launch of euro cash in January and it had had no noticeable impact on inflation, the Federal Statistics Office said on Wednesday.

The Statistics Office and the Bundesbank have been monitoring retailers to see if they were pushing up prices by rounding up local prices as they switch to displaying the cost of goods in euros.

"First results show that so far only in isolated instances, prices have been switched into attractive euro prices (from German marks)," the Statistics Office said. "A noticeable impact on individual indices for the monitored goods had not been registered so far."

The ECB has repeatedly assured the 300 million citizens of the euro zone that any inflationary impact of the introduction of the euro notes and coins should be negligible and short-lived.