June 28, 2013 / 10:17 AM / in 5 years

German inflation set to move towards ECB's 2 pct target

BERLIN, June 28 (Reuters) - German annual inflation probably accelerated in June, moving towards the European Central Bank’s target of close to but just below 2 percent for the whole euro zone and possibly even exceeding it, data from four federal states suggested on Friday.

Inflation in Germany has remained below the ECB’s target this year after spending much of last year above it.

In North Rhine-Westphalia (NRW), Germany’s most populous state and a bellwether for the national data, annual inflation picked up to 2.1 percent on the year in June, largely due to higher food and education costs.

That is much higher than the 1.7 percent mid-range forecast in a Reuters poll for the pan-German figure, which is due out at 1200 GMT and is based on data from the federal states.

Christian Schulz, senior economist at Berenberg Bank, said the 0.2 percent monthly rise in consumer prices in NRW pointed to German annual inflation accelerating to 1.9 percent.

It also suggested the figure harmonised to compare with other European Union countries - the measure closely watched by the ECB - would pick up to 2 or 2.1 percent, he said.

“Core inflation in Germany, outside very volatile components like food and energy, is likely to have a very gradual tendency to rise because wages are rising so strongly and unemployment is so low,” he said, adding that cheaper imports from euro zone states would however exert downward pressure.

German workers have secured hefty wage raises of up to 6.6 percent this year and the jobless rate remains close to its lowest since Germany reunited more than two decades ago.

A Reuters poll expected consumer prices to remain unchanged on the month. The poll showed consumer prices harmonised to compare with other EU countries were likely to remain unchanged on the month and to accelerate to 1.8 percent on the year.

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