Germany is officially heading in the wrong direction

Germany’s economy is officially headed in the wrong direction and has slipped back into deflation, official figures released on Friday morning showed.

CPI inflation, calculated on a harmonised basis, fell by 0.2% on a year-on-year basis during February, confirming the earlier snap reading of the same figure.

That reading was down from growth of 0.4% in January. Economists had expected CPI to remain at 0.4% last month, so the drop back into deflation is a big surprise. Here’s the chart:

On a month-by-month basis, CPI inflation actually rose by 0.4%, while the headline CPI figure was 0% year-on-year.

Germany’s economy is traditionally regarded as the powerhouse of Europe, with the country having a far higher GDP than any other nation on the continent. Earlier this month, George Friedman, the founder of Geopolitical Futures warned Business Insider that Germany’s economy could be the next big problem for Europe, and today’s figures suggest that might be the case.

The country’s return to deflation will also be particularly worrying to the European Central Bank, which yesterday announced a huge set of new monetary policies aimed, once again, at boosting flagging growth and stagnant inflation across Europe. The measures included cuts to all of the ECB’s key rates, and an expanded programme of bond buying.

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