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German inflation picks up to hit 16-month high

General view inside the shopping mall 'Pasing Arcaden' in Munich, Germany, August 18, 2016. REUTERS/Michaela Rehle/File Photo

BERLIN (Reuters) - German annual inflation accelerated in September, hitting its highest level in 16 months, preliminary data showed on Thursday, in an encouraging sign for the European Central Bank that its ultra-loose monetary policy is working.

German consumer prices, harmonized to compare with other European countries (HICP), rose by 0.5 percent on the year after an increase of 0.3 percent in August, the Federal Statistics Office said. This was the highest rate since May 2015 and in line with a Reuters consensus forecast.

On a non-harmonized basis, German annual inflation picked up to 0.7 percent after 0.4 percent in August, the Statistics Office said. This was also the highest level since May 2015.

Energy prices remained the main drag on the headline figure, but they fell less sharply than in the previous months, a breakdown of the non-harmonized data showed. Costs for rents increased faster than in August while food inflation slowed.

Reporting by Berlin Newsroom