* German HICP inflation at 1.1 pct (forecast 1.3 pct)
* Euro zone data due on Weds, expected to show pickup
* German data heightens dilemma for ECB
(Adds detail, quotes)
By Michelle Martin
BERLIN, April 29 German annual inflation
accelerated in April but less than expect, preliminary data
showed on Tuesday, complicating the European Central Bank's
decision on whether to act against deflationary trends.
Euro zone inflation is running at 0.5 percent and there are
concerns about deflation. A report due on Wednesday is expected
to show inflation in the euro bloc picking up to 0.8 percent in
April, but that would still be well below the ECB's medium-term
target of just below 2 percent.
On Monday ECB President Mario Draghi played down the
likelihood of any imminent money-printing to buy assets, saying
that while low inflation would persist, such quantitative easing
remained a way off, according to a source.
German consumer prices harmonised to compare with other
European Union countries - the HICP measure of inflation used by
the European Central Bank - rose by 1.1 percent in April, data
from the statistics office showed.
That was less than the 1.3 percent forecast in a Reuters
poll although it compared with 0.9 percent in March.
"The increase is slightly too small to really lean back and
relax... It's clearly going to give them a headache," said ING
senior economist Carsten Brzeski.
"If the increase in euro zone inflation tomorrow is also
only as small as the German HICP increase, the chances of action
have increased, combined with today's disappointing monetary
data," he added.
Other data on Tuesday showed lending to euro zone households
and companies declined further in March and money supply growth
Christian Schulz, senior economist at Berenberg bank, said
the German inflation reading could point to a
lower-than-forecast euro zone figure and could therefore pile
more pressure on the ECB to ease policy soon.
Although ECB staff forecasts in March pointed to inflation
picking up to 1.5 percent in 2016, and 1.7 percent in the final
quarter of that year, the central bank has faced pressure to act
- in particular from the International Monetary Fund.
"I think that monetary policy should do everything it can in
order to make sure that inflation goes back to fulfil the
mandate of the ECB," Jose Vinals, director of the IMF's monetary
and capital markets department, told Reuters on
Last week, Draghi set out three scenarios under which the
bank could act: an unwarranted tightening of the policy stance,
impairments in the transmission of policy, or a deterioration of
the medium-term inflation outlook.
ECB Vice President Vitor Constancio said on Monday April's
inflation figures for the euro zone should not alone trigger a
policy change because "it's not just one or two numbers that
Moderate inflation, combined with a strong labour market and
low interest rates, is helping to boost domestic demand, on
which the government is relying to prop up growth this year as
foreign trade is expected to be weak.
A survey by GfK market research group published on Tuesday
showed German consumer morale remained at its highest level in
more than seven years heading into May as consumers' income
expectations hit a record high, helped by modest inflation and
expectations that pay will rise.
But Schulz said German inflation was likely to pick up.
"There's real hope that German inflation will stabilise and
gradually increase due to domestic pressures such as wage
settlements, which could be quite generous given the very low
unemployment rate in Germany and the strengthening recovery,"
Unions have already secured strong wage hikes for chemical
workers and public sector employees this year and GfK market
research group has said the first wage deals in 2014 suggested
that wage increases of 3 percent or more were realistic.
(Reporting by Michelle Martin; additional reporting by Paul
Carrel in Frankfurt; Editing by Jeremy Gaunt/Madeline Chambers)