September 28, 2011 / 2:25 PM / 8 years ago

UPDATE 2-German inflation hits surprise 3-year high in Sept

* CPI up 2.6 pct vs 2.4 pct in August

* Data weakens case for swift ECB rate hike

* Economists expect price pressures to ease in months ahead (Adds national figures, economists)

By Brian Rohan

BERLIN, Sept 28 (Reuters) - German inflation jumped unexpectedly to a three-year high in September, data showed, weakening the case for a growth-boosting interest rate cut by the European Central Bank even as the economic outlook darkens.

Annual consumer price inflation rose to 2.6 percent from 2.4 percent in August — a jump above expectations for it to hold steady, Wednesday’s preliminary statistics office data showed.

Germany’s harmonised index of consumer prices (HICP) — the ECB’s preferred measure of inflation — also rose more than expected, hitting 2.8 percent from 2.5 percent in August.

“September’s price rise was somewhat surprising,” said Thilo Heidrich from Postbank. “In 2012 we see an average annual inflation of 2.5 percent — Germany will therefore see inflation above the ECB’s target.”

Given the central bank’s mandate to keep inflation across the euro zone just below 2 percent, the figures may add to its policy challenges if German price pressures remain high compared to other members of the block.

The ECB has moved back into crisis mode in recent months as the euro zone sovereign debt woes have intensified, changing its tone last month and signalling nervousness which economists said opened the door to rate cuts.

For much of the year, it has been beset with the dilemma of balancing monetary policy for Germany’s strong economy and for struggling peripheral euro zone states.

“It’s a precarious situation,” said Michael Schubert from Commerzbank. “Rising prices in Germany make it difficult to decide over policy for the broader euro zone, although the bank will likely keep rates on hold for now and maybe think of lowering them if data worsens in October.”

PRESSURES SUBDUED

Speculation that euro zone borrowing costs might be trimmed has gained ground this month, and ECB policymakers sent mixed messages on rates this week, leading some observers to expect a cut as early as October.

Bank president Jean-Claude Trichet however stressed on Wednesday the ECB’s role as an anchor of stability, a likely signal it is not about to change course and cut rates fast.

For the moment, most economists expect Germany will avoid a repeat of the surprise September data in the months ahead, which would make life easier for the ECB.

Recent figures suggest growth in Europe’s largest economy is set to slow on the back of the global downturn, and economists expect inflation to ease from a cyclical peak.

“Underlying inflationary pressures remain subdued and the headline rate will fall pretty sharply in the months ahead,” said Ben May from Capital Economics.

“Energy and food inflation should soon begin to fall back, providing that oil and agricultural commodity prices do not climb higher,” he added. “This alone should push the headline rate back below 2 percent.”

If price rises do not ease soon, however, employees may start demanding more generous wage settlements to keep up, raising fresh concerns for policymakers.

Powerful German trade union IG Metall raised just this idea on Wednesday following the data, saying at a meeting in Frankfurt it planned to campaign for clear pay hikes in next year’s negotiations with employers in the country’s large engineering sector. (Writing by Brian Rohan, additional reporting by Eva Kuehnen, Christiaan Hetzner and Alexandra Hudson; graphic by Scott Barber; Editing by John Stonestreet)

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