UPDATE 3-Energy prices push up German inflation in August

(Recasts with national preliminary data, economist, background)

By Michelle Martin

BERLIN Aug 29 (Reuters) - Annual inflation in Germany accelerated to 2.0 percent in August due to higher energy prices, preliminary data showed on Wednesday, posing a dilemma for the European Central Bank as it weighs an interest rate cut to help struggling southern states.

The annual figure came in well above the consensus forecast in a Reuters poll of 31 economists for inflation of 1.8 percent in August, up from 1.7 percent last month.

The ECB targets inflation close to but just under 2 percent in the euro zone as a whole. The pan-German inflation rate was last at 2.0 percent in April.

"The ECB is running a very accommodative, stimulating monetary policy with interest rates being very low. In the German situation these rates might be too low," said Christian Schulz, Senior Economist at Berenberg Bank.

"For us this just confirms a rate cut is very unlikely now - what is much more likely is that the ECB will do everything it can to reestablish the transmission of monetary policy."

A Reuters poll published on Wednesday showed economists split over whether the ECB will trim its main refinancing rate to a new record low of 0.5 percent at its next policy meeting on Sept. 6 after holding it at 0.75 percent in August.

The pick-up in German inflation is unlikely to worry the government in Berlin or the Bundesbank, both of which have hinted they would tolerate higher prices as long as euro-wide inflation remains under control. That could help ailing euro zone countries boost their competitiveness.

The Federal Statistics Office said higher heating oil and fuel prices were behind the pick-up in inflation. Oil prices have risen nearly 30 percent since June with international sanctions hitting Iranian exports and maintenance affecting North Sea oil flows.

German carrier Deutsche Lufthansa earlier this month pulled back further from plans to lift capacity and expand its passenger fleet to safeguard profits as its fuel costs soared by 22 percent in the first half of 2012.

Food prices are also on the rise after the worst drought in half a century in the United States and poor crops from the Black Sea bread basket hit corn, wheat and soybean supplies.

"In the coming months there will be more adversity on the price front - after energy prices, food prices could be the next price driver," said Marco Bargel, chief economist at Postbank.

"Inflationary pressures could increase if the economic momentum picks up towards the end of the year, as we expect."

DOMESTIC DEMAND

The increase in pan-German price pressures puts a dampener on hopes that domestic demand, boosted by low unemployment and wage rises, will prop up Germany's traditionally export-driven economy as shipments abroad falter in the face of the euro zone debt crisis and a slowdown in global demand.

"In the short-term rising inflation, especially fuel price inflation, which is a kind of inflation that households feel very quickly, usually dampens other consumption in Germany so in the short-term I would expect this to have a negative impact on things like retail sales," Schulz said.

Data due out on Friday is expected to show retail sales grew by a mere 0.2 percent in July, while a survey released earlier this week showed the morale of German consumers held steady heading into September.

On a monthly basis preliminary consumer prices increased by 0.3 percent, the data from the Federal Statistics Office showed, more than the consensus forecast in a Reuters poll of 29 economists for a 0.2 percent rise in the cost of living.

Consumer prices harmonised to compare with other European Union countries showed a monthly rise of 0.3 percent and a year-on-year gain of 2.2 percent after a monthly gain of 0.4 percent and an annual rise of 1.9 percent in July.

A Reuters poll of economists had expected this measure of inflation would pick up to 2.0 percent on the year in August and decelerate to 0.1 percent on the month.

Germany's flash inflation estimate is based on data from six of the country's 16 states, which make up more than half of the population.

Final German price data for July are due to be released on September 12, the office said. (Reporting by Michelle Martin, editing by Gareth Jones and Noah Barkin)