Thanks to falling oil prices, Germans can now fill up more often
Low prices for gasoline and diesel are the best Christmas gift for German motorists. Due to a sharp reduction in spending on these items in the outgoing year, drivers will be able to save a total of about five billion euros compared to the previous year. The newspaper Bild am Sonntag cites these figures from the Association of the Petroleum Industry (MWV). Analysts of this organization, which unites German representatives of oil producing companies, cite the almost twofold global drop in crude oil prices as the main reason for the decline in fuel prices.
The fact that Super E10 gasoline and diesel can now be filled up at prices from five years ago encourages car owners to drive more often. MWV representative Alexander von Gersdorff expects that this year drivers will purchase 2% more gasoline and 4% more diesel than in 2013. Therefore, there is reason for joy not only for motorists, but also for the treasury in the person of Federal Finance Minister Wolfgang Schäuble: due to additional fuel sales, tax revenues in the budget should increase by 550 million euros.
The drop in crude oil prices also affects the average cost of other types of energy: according to the European Climate Foundation, in November they fell by another 1.1% compared to October. This certainly pleases end consumers, but the leadership of the European Central Bank (ECB) is rather alarmed by this trend.
Vice President Vítor Constâncio, in an interview with the magazine Wirtschaftswoche, warned Europeans against excessive optimism about the general decline in prices. He believes that in the long term, low oil prices could trigger deflation and lead to a recession in the economy.
If the price situation continues like this, we will face a dangerous vicious circle: falling prices will cause an increase in the purchasing power of the euro in the form of higher real wages, which, in turn, will reduce profits, decrease demand and lead to a new round of price declines. Constâncio said that in light of recent events, ECB analysts doubt that the planned 2015 inflation rate of 0.7% will be maintained – the economy is moving towards deflation.
Let us recall that from the point of view of influence on key economic indicators, moderate inflation is regarded as a much more favorable factor than the opposite process of deflation, manifested in the growth of the purchasing power of money. The result of deflationary policy may be a slowdown in economic growth. The ECB Vice President stressed that in the event of such negative trends, it is necessary to use all possible tools to combat them, including the purchase of government bonds.
However, Vítor Constâncio assured that it is still too early to talk about deflation in the eurozone, even if inflation indicators are negative for several months. In deflation, businesses and consumers cut back on investment and spending or hold back in anticipation of the future. Today's mood in Germany rather indicates an increase in consumer purchasing activity, which is one of the important factors supporting the market situation.