REFILE-UPDATE 1-German inflation slower than expected in September
By Michelle Martin
BERLIN, Sept 27 (Reuters) - German annual inflation decelerated to 1.4 percent in September, falling further below the European Central Bank's target of close to but below 2 percent and posing no threat to the bank's expansive monetary policy.
A drop in energy prices was behind the slowdown, which came after a 1.5 percent increase in the cost of living in August, initial data from the statistics office showed on Friday.
The reading undershot the median forecast in a Reuters poll for an unchanged reading of 1.5 percent.
"Inflationary pressures in the euro zone's biggest economy are still hard to find," said Carsten Brzeski, senior economist at ING, adding that there had not yet been an increase in prices after workers secured a series of hefty wage rises this year.
"For the euro zone, this has at least two implications: i) rebalancing remains a cumbersome process and ii) the ECB can continue with its highly accommodative monetary policy."
At its last rate-setting meeting in early September, the ECB confirmed that it would keep interest rates at record lows for an "extended period" and ECB Executive Director Joerg Asmussen said on Thursday the bank's monetary policy would stay expansive for as long as necessary.
Economists polled by Reuters do not expect any change in rates when the bank meets on Wednesday.
German inflation has remained below the ECB's target this year after spending some of last year above it.
While the German economy is robust, recent data has not suggested there is any danger of inflation accelerating. Forward-looking sentiment surveys have improved but the latest hard data have been disappointing, with exports, industrial orders and output all falling in July.
After a contraction late last year and a weak start to 2013, the German economy bounced back in the second quarter, when it grew by its strongest rate in more than a year but economists generally expect slower growth between July and September.
Moderate inflation, along with high employment, wage hikes and low interest rates at banks are all increasing private consumption in Germany. As shipments abroad falter in a weak global environment, such domestic demand has become a key pillar of growth in the traditionally export-oriented German economy.
Consumer prices were steady on a monthly basis.
Consumer prices harmonised to compare with other European Union countries were also unchanged on the month and showed a year-on-year rise of 1.6 percent.
Final inflation data is due on October 11, the office said.
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