By Maria Martinez

--German consumer prices in July fell 0.5% month over month measured both by national standards and by EU-harmonized standards

--The consumer price decrease was driven by the VAT reduction

--Consumer prices were down 0.1% on year by national standards and remained flat on year by EU-harmonized standards

German consumer prices fell in July, confirming preliminary data, German statistics agency Destatis said Thursday.

Consumer prices fell 0.5% on month measured by both national standards and EU-harmonized standards, Destatis said. Both were in line with the forecasts of economists polled by The Wall Street Journal.

Consumer prices were down 0.1% on year by national standards and remained flat on year by EU-harmonized standards. Both were also in line with the forecasts of economists polled by The Wall Street Journal.

After the inflation rate increased slightly in June, the value added tax, or VAT, reduction--a measure of the German government's stimulus package--had a downward effect on the development of prices, Destatis said. However, to what extent the lower tax rates were passed on to consumers is difficult to determine since the price development is influenced by many factors, the statistics office said.

The prices of goods decreased 1.4% in July year over year mainly a a result of the VAT cut. The decline in energy prices accelerated slightly on year, although oil prices are on the rise again in the world market. The year-over-year decrease in energy products' prices continued to have a downward effect on the inflation rate.

Excluding energy prices, the inflation rate would have been 0.8% in July, Destatis says.

On the other hand, food prices were up 1.2% compared with a year earlier, with the price increase slowing markedly from the 4.4% increase in June, Destatis said. There were above-average price increases for fruit and for meat and meat products, while the prices of edible fats and oils were down.

The prices of services rose by an above-average 1.2% in July from a year earlier, driven by the increase in net rents due to heating expenses, which have been unaffected by the VAT cut. Despite the reduction in VAT, higher prices had to be paid for hairdresser services and other personal-care services, as well as for visits to restaurants and cafes, Destatis said.

Write to Maria Martinez at maria.martinez@wsj.com

(END) Dow Jones Newswires

August 13, 2020 02:58 ET (06:58 GMT)

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