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German February inflation to surpass ECB target, state data suggest
March 1, 2017 / 11:44 AM / 7 months ago

German February inflation to surpass ECB target, state data suggest

BERLIN, March 1 (Reuters) - German inflation probably picked up in February, surpassing the European Central Bank’s target of a rate just under 2 percent for the first time in more than four years, regional data suggested on Wednesday.

With federal elections set for September in Germany, the inflation figures are likely to fuel debate about an end to the European Central Bank’s loose monetary policy.

Preliminary data from several German states showed that consumer price inflation accelerated across the country, mainly driven by higher food, energy and transportation costs.

In the most populous state, North Rhine-Westphalia, annual inflation rose to 2.3 percent from 1.9 percent in January. It reached 2.5 percent in Hesse, 2.4 percent in Saxony, 2.2 percent in Baden-Wuerttemberg, 2.1 percent in Bavaria and 2.0 percent in Brandenburg.

The state readings, which are not harmonised to compare with other euro zone countries, will feed into nationwide inflation data due at 1300 GMT.

A Reuters poll conducted before the release of the regional data suggested overall consumer price inflation rose to 2.1 percent in February from 1.9 percent in January, the highest rate since September 2012.

Capital Economics analyst Jennifer McKeown said the state readings supported the forecast, but German core inflation, which strips out volatile energy and food costs, was likely to remain weak in the coming months.

“This should encourage the ECB to implement its asset purchases as planned,” McKeown said.

The inflation rate for the entire euro zone is expected to rise to 2.0 percent in February from 1.8 percent in January, economists polled by Reuters said. Those figures are due on Thursday.

The ECB has slashed interest rates and adopted a bond-buying programme worth 2.3 trillion euros to pump money into the region’s economy.

A sustained rebound in German inflation would give Bundesbank President and ECB rate setter Jens Weidmann more grounds to argue for a reduction in the ECB’s bond-buying programme, a scheme that he has often criticised.

The German central bank has warned that homes in large German cities are 15 to 30 percent overpriced, in a message that stoked further fears about the side-effects of the ECB’s stimulus. (Editing by Larry King)

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