* German joblessness up 21,000 in May, rate still 6.9 pct
* Prelim annual CPI accelerates to 1.5 pct in May
* Rising wages seen supporting private consumption
By Michelle Martin
BERLIN, May 29 (Reuters) - German unemployment and inflation rose more than forecast in May but remained at very subdued levels which economists said should support the private consumption the government is relying on to prop up growth in an election year.
The number of people out of work rose 21,000 on a seasonally adjusted basis to 2.963 million, well above the consensus forecast in a Reuters poll for a rise of 5,000.
But the overall jobless rate was unchanged at 6.9 percent and remained close to its lowest since unification - welcome news for Chancellor Angela Merkel as she campaigns for a third term in September’s election.
Economists said cold weather, numerous public holidays in May and a sense of caution among employers after the Italian election and Cyprus’s messy bailout were likely behind the rise.
“We should prepare ourselves for a tough year on the labour market. The slight upward trend in unemployment will probably continue in the coming months, especially as companies are less willing to hire,” Commerzbank economist Eckart Tuchtfeld said.
Major German companies such as steel distributor Kloeckner & Co and BASF have widened job cuts and last week a survey showed staffing levels fell across the private sector in May for the first time since January.
Despite the monthly rise in jobless, Germany is faring much better than many of its struggling peers in the euro zone such as Greece and Spain, where more than one in four are jobless.
Many Germans will take home more pay this year and next after securing inflation-busting wage hikes which should translate into higher consumer spending, especially as shoppers’ morale is at its highest since September 2007.
Private consumption saved the German economy from slipping into recession in the first quarter and is expected to be its saving grace this year as foreign trade slows.
Separate data released on Wednesday showed Germany’s annual inflation rate accelerated slightly in May but remained moderate at 1.5 percent, well below the European Central Bank’s target of close to but below 2 percent in the euro zone as a whole.
“Inflation is virtually non-existent in Germany and if you combine that with rising wages... it means real incomes are rising, which should be supportive for consumption - one of the pillars that Germany will have to rely on for growth this year,” said Christian Schulz, senior economist at Berenberg Bank.
The European Commission said on Wednesday Germany must allow wage hikes to support domestic demand and permit workforce flexibility and increase competition in the services sector.
Finance Minister Wolfgang Schaeuble said Germany should not rest on its laurels despite the Commission’s praise for the government’s economic and budgetary policies.
“International competition remains tough and Germany must, like other EU member states, continue to work on its competitiveness - only that, combined with a consistent stability-orientated budgetary policy, will secure us prosperity and stability,” he said in a statement.
The OECD cut its forecast for German growth this year to 0.4 percent - 0.1 percentage points lower than the government’s estimate - from its November estimate of 0.6 percent due to the weak economic environment in the euro zone.
Recent data suggest the German economy is picking up, with sentiment indicators improving and backward-looking data for March showing industrial orders, exports, imports and output have all risen.