FRANKFURT (Bloomberg) -- The inflation rate in Germany, Europe’s largest economy, dropped to the lowest level in more than two years in December after the cost of oil plunged.

The inflation rate declined to 1.1 percent from 1.4 percent in November, the Federal statistics Office said in Wiesbaden on Wednesday. That’s the lowest level since October 2006. Economists expected German inflation to slow to 1.2 percent using a harmonized European Union method, according to the median of 19 forecasts in a Bloomberg News survey. From a month earlier, prices rose 0.4 percent.
The cost of crude oil has dropped more than 70 percent from a July peak of 147 dollars a barrel, alleviating price pressure and making it easier for the European Central Bank to cut interest rates. The Frankfurt-based bank has lowered its benchmark by 175 basis points to 2.5 percent since early October after the global financial crisis pushed up lending costs and the euro area fell into its first recession in 15 years.
“Inflation rates will continue to decline in coming months, but we don’t expect a deflation even if rates may turn negative temporarily,” said Arnd Schaefer, an economist at WestLB Equity Markets in Dusseldorf. “The ECB will quickly reduce its benchmark and reach the trough in interest rates at 1.5 percent in the second quarter.”