German March inflation weakens sharply

BERLIN - German annual inflation slowed sharply in March, figures from six German states showed on Friday, pointing to tamer prices in the broader euro zone which should give the European Central Bank room to cut rates.

By (Reuters)

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Published: Fri 27 Mar 2009, 7:37 PM

Last updated: Thu 2 Apr 2015, 7:45 AM

Together the data pointed to a sharply lower inflation rate for Germany as a whole and for the broader 16-nation euro zone.

Figures from the states of Bavaria, Baden-Wuerttemberg, Brandenburg, Hesse and North Rhine-Westphalia showed annual inflation at the lowest levels in at least a decade. The sixth state, Saxony, saw inflation dip to 0.4 percent, its lowest reading in almost six years.

Data from the states are used to calculate Germany’s preliminary consumer price index (CPI), due out later on Friday, which economists polled last week forecast would show a 0.8 percent year-on-year rise.

Economists had forecast that the euro zone flash reading on March 31 will be 0.8 percent, but will likely revise down their expectations after the German data.

Following the release of the state data, economists from Commerzbank forecast that the German inflation rate would come in at a much lower 0.4 percent for the month.

“The reason for the low inflation is the strong decline in energy prices,” the bank said in a research note. “Energy prices should continue to shape the inflation rate in the coming months.”

Annual inflation in Hesse and Brandenburg stood at 0.2 percent in March, while Germany’s most populous state of North Rhine-Westphalia saw inflation dip to a 10-year low of 0.3 percent. Prices in Bavaria and Baden-Wuerttemberg rose by 0.8 percent and 0.5 percent, respectively.

Should other European inflation data be similar to March’s figures from the German states, it would add weight to concern among central bankers over the risk of falling prices despite very low interest rates.

The European Central Bank has cut rates at a record pace in recent months to an all-time low of 1.5 percent, and analysts expect it to cut them again to 1 percent at its next meeting on April 2.

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