August 28, 2014 / 10:00 AM / 3 years ago

State data points to German inflation pick-up in August

BERLIN, Aug 28 (Reuters) - Annual inflation in Europe’s largest economy likely accelerated slightly in August, data from some of Germany’s federal states signalled on Thursday, potentially helping to stabilise the euro zone rate and lessening immediate pressure on the ECB to act.

Data from three states showed inflation picking up, while consumer price pressures held steady in a fourth state. In North Rhine-Westphalia, Germany’s most populous state and a bellwether for the national rate, consumer prices rose by 1.1 percent in August compared with 1.0 percent the previous month.

Economists polled by Reuters before the states’ data was published had forecast that the preliminary national figure, which is due at 1400 GMT and is based on the regional figures, would show price pressures remaining at 0.8 percent on the year.

But Christian Schulz, senior economist at Berenberg Bank, said the states data indicated that consumer prices could rise by 0.9 percent annually at the national level.

“From what we’ve seen so far there’s definitely an upside risk to consensus forecasts,” he said.

Preliminary euro zone inflation data, due out on Friday, had been expected to show the annual rate slowing to 0.3 percent from 0.4 percent, according to a Reuters poll, but if the German rate picks up, the rate could remain unchanged in August.

“Now there’s a slight upside risk that euro zone inflation will also remain stable,” Schulz said.

That would, however, still be well below the European Central Bank’s target of close to but just under 2 percent over the medium term. It considers anything below 1 percent to be in its “danger zone”.

But it would probably make it less likely the bank will take any policy action when its governing council meets next week.

“That would reduce the immediate urge to act although I don’t think it changes anything about the pressure on the ECB in general to do more because the economy is slowing,” Schulz said.

ECB sources have told Reuters the ECB is unlikely to take new policy action next week unless August inflation figures show the euro zone sinking significantly towards deflation.

Reporting by Michelle Martin; Editing by Stephen Brown

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