German Inflation Weakens in August as Recession Draws Nearer

(Bloomberg) --

German inflation unexpectedly weakened in August, adding to signs of economic frailty after a separate report showed the nation’s unemployment rising.

Consumer prices climbed 1% from a year earlier, down from 1.1% a month earlier and well short of the goal of just under 2% that the European Central Bank sets for the euro zone as a whole. Joblessness continued to edge higher after six years of almost continuous decline.

The latest reports increase the pressure on Germany, Europe’s largest economy, to deliver fiscal stimulus as it teeters on the edge of recession. Manufacturing is already contracting, hit by a slump in exports amid global trade and political tensions, and higher unemployment threatens to hurt the consumer spending that has so far kept the services sector robust.

The government has signaled it is reviewing stimulus options and is prepared to act should the need arise. The economy shrank 0.1% in the second quarter and is expected to decline again in the third, fitting the typical definition of a recession.

The ECB has urged Germany to move away from its policy of a balanced budget and act on the sluggish economy. Policy makers are widely expected to cut interest rates further below zero when they meet on Sept. 12.

To contact the reporter on this story: Kristie Pladson in Frankfurt at kpladson@bloomberg.net

To contact the editor responsible for this story: Paul Gordon at pgordon6@bloomberg.net

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