Inflation down in five German states, pointing to national decline

By Maria Martinez

BERLIN (Reuters) -Inflation fell in five important German states in January, preliminary data showed on Friday, suggesting the national rate could show an unexpected decline when it is released at 1300 GMT.

The inflation rate fell in Saxony, Brandenburg, Baden-Wuerttemberg, North Rhine-Westphalia and Bavaria, while it increased slightly in Hesse.

Economists polled by Reuters have forecast a harmonised national inflation rate in Germany – the euro zone’s largest economy – of 2.8% in January, unchanged from the previous month.

French consumer prices increased slightly less than anticipated in January, preliminary data from the statistics agency INSEE showed on Friday, with the harmonised rate at 1.8%.

The German and French data come ahead of overall euro zone inflation figures on Monday. Economists polled by Reuters expect a bloc-wide inflation rate of 2.4% in January, unchanged from the previous month.

Andrew Kenningham, chief Europe economist at Capital Economics, said national and regional data published so far suggest that euro zone inflation may come in a bit lower than anticipated.

“This would support those on the European Central Bank Governing Council arguing for significantly more policy easing in the coming months,” Kenningham said.

The ECB cut interest rates on Thursday and policymakers guided for a further reduction in March as concerns over lacklustre economic growth supersede worries about persistent inflation.

However, euro zone consumers and economists’ inflation expectations for this year increased in separate surveys issued on Friday, raising some doubts about the ECB’s assertion that price growth is firmly under control.

In Germany, a survey from the Ifo Institute on Friday indicated that fewer manufacturers plan to raise their prices, while more consumer-related service providers want to raise theirs.

“The inflation rate is therefore also expected to be at around 2.5% in the coming months, hence above the ECB’s target,” said Timo Wollmershaeuser, head of forecasts at Ifo.

(Reporting by Maria Martinez, Editing by Miranda Murray and Kevin Liffey)

tagreuters.com2025binary_LYNXNPEL0U095-VIEWIMAGE