It looks as if Europe’s brief flirtation with falling prices is ending. Whilst demand for goods within the EU has been weak (certainly, in historical terms) which may have generated a modicum of deflationary pressure, the driver for deflation was the sharp decline in the price of crude oil. The oil price (Brent crude) was at about $115 this time last year. Currently, it stands about $64, having come off a low of about $48. The crude oil price dictates fuel prices which have an impact on people’s living costs, but also affects transport costs for goods and energy production costs since oil is burned in some power station (the gas price has also fallen, of course). It could be argued that the dramatic fall in the cost of oil never fed through completely to the consumer; certainly pump prices were slow to drop, saw only a fraction of the decline in the oil price and picked up once the oil price had started to come back a bit.
According to the German statistics office, Destatis, the consumer price index rose by 0.1% in May over the April reading. This marks the fourth straight month of increased prices and has seen a year-on-year rise of 0.7% in May. The increase has been blamed on dearer prices for foodstuffs such as bread, confectionary, fish and fruit and vegetables whilst the cheaper oil price continues to feed through (logically enough), however, energy prices rose by 1.2% between May 2014 and 2015.
Business confidence has taken a knock because of the on-going Greek crisis and continuing week global demand. The ZEW investor confidence reading slipped by 10.4 points in June to stand at 31.5 points which is its lowest reading in eight months.