February 28, 2013 / 2:15 PM / 5 years ago

UPDATE 2-German inflation at lowest in more than two years

* German annual inflation rate eases to 1.5 pct

* Removal of quarterly fees for doctor visits contributes to easing

* Economic upturn seen pushing inflation higher

By Michelle Martin

BERLIN, Feb 28 (Reuters) - German annual inflation eased to its lowest level in more than two years in February, coming in below the European Central Bank’s target for a second straight month, data showed on Thursday.

Consumer prices rose by 1.5 percent on the year in February, the smallest increase since December 2010, data from the Statistics Office showed. The ECB targets just below 2 percent.

The February reading, which was preliminary, was less than the 1.6 forecast in a Reuters poll of 27 economists and below January’s 1.7 percent yearly rate of inflation.

The Statistics Office said the German government’s decision to scrap from January 1 a fee of 10 euros paid to doctors and dentists for the first visit in every quarter had contributed to the easing of the yearly inflation rate.

“Overall consumer price development in Germany is very moderate at the moment,” said Postbank economist Thilo Heidrich.

“In the coming months we expect the rate of inflation to stop slowing in view of the strengthening economy and to settle below the 2 percent threshold.”

Germany’s inflation rate held above this level for much of 2012 as its economy steamed ahead of its peers in the 17-nation bloc and as workers secured high pay rises.

That posed a dilemma for the ECB, which struggled to balance monetary policy for Europe’s economic powerhouse with the needs of indebted states such as Greece, Italy and Spain.

The ECB left its main interest rate at 0.75 percent in February and is expected to keep it on hold at its rate-setting meeting next week.

LOOKING UP

While Germany’s economy put in a strong performance in 2010 and 2011 despite the euro zone crisis, growth slowed last year and economic output shrank by 0.6 percent in the fourth quarter.

The latest economic data point to an upturn in Germany in the first quarter, with morale among German businesses, investors and consumers improving, the private sector expanding and exports, unemployment falling and orders and output rising.

But the wages of some 12.5 million workers whose pay is up for negotiation this year look set to rise by between 2.5 and 4.0 percent, outpacing prices. That could push inflation higher.

On a monthly basis German prices climbed by 0.6 percent, after dropping by 0.5 percent in January. The rise was below a Reuters consensus forecast for a 0.7 percent increase in prices.

Consumer prices harmonised to compare with other European Union countries showed a monthly gain of 0.8 percent and an annual rise of 1.8 percent.

Final German price data for February are due to be released on March 12, the statistics office said.

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