German consumer prices fell in January despite increase in VAT rate

Irish
German consumer prices fell in January despite increase in VAT rate
By Finfacts Team
Jan 30, 2007, 14:35

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German Chancellor Angela Merkel at the World Economic Forum in Davos, Switzerland, Jan 24, 2007

The German Federal Statistical Office De Statis, reported today that the consumer price index for Germany is expected to increase 1.6% in January 2007 compared with January 2006, based on the results available from six Länder (December 2006: +1.4%).

Compared with the previous month, a -0.2% rate of change was reported in January.

An effect of the VAT rise on 1 January 2007 can only marginally be observed in the results. Theoretically, if the VAT rise had fully and immediately been passed on to private final consumers, an additional increase in the year-on-year rate of price increase by 1.4 percentage points would have been possible. According to the provisional results, however, the year-on-year rate of price increase was up by just 0.2 percentage points, that is from 1.4% in December 2006 to 1.6% in January 2007.

This reflects, on the one hand, considerable price rises for electricity (between +2.4% and +11.5% in the Länder included in the estimation) and gas (+8.2% to +11.2%) and, on the other hand, marked price decreases (compared with January 2006) for domestic fuel (–7.1% to –12.1%) and for motor fuels (–1.4% to –4.1%). The possible effect of the VAT rise is thus concealed. Current sale actions are another reason why the VAT effect cannot be calculated. The coming months may show the situation more clearly.

In January 2007, the decreasing month-on-month rate of change is mainly due to seasonal price falls for package holidays (–23.8%) and holiday homes (–35.3%).
The harmonised consumer price index for Germany, which is calculated for European purposes, is expected to rise 1.8% from January 2006 to January 2007 (December 2006: +1.4%). Compared with the previous month, the index decreased by 0.2%.

The final results for January 2007 will be available on 16 February 2007.

Since the consumer price index was estimated for the first time on base 2000 in February 2003, the estimate was correct thirty-one times, while it was 0.1% above or below the final result fifteen times.