INFLATION IN Germany, Europe’s biggest economy, accelerated more than economists forecast in September to the fastest pace in three years.
The increase dampens hopes for an imminent euro zone cut in interest rates.
The inflation rate, calculated using a harmonised European Union method, increased to 2.8 per cent from 2.5 per cent in August, the Federal Statistics Office in Wiesbaden said today. This is the highest since September 2008.
Economists had predicted the rate would rise to 2.6 per cent. Prices advanced 0.1 per cent in the month. European Central Bank (ECB) officials have signalled they will defy calls for lower interest rates next month amid a sovereign debt crisis that’s threatening to push the 17-nation euro region into recession.
Inflation “is likely to stay above” the ECB’s 2 per cent limit for the remainder of the year, it said in its monthly report on September 15th.
“Given an environment of accelerating price pressure it’s psychologically pretty difficult for the ECB to lower interest rates even though the bank has some room left to act,” said Stephan Rieke, an economist at BHF Bank in Frankfurt.
“However, inflation risks are clearly tilted to the downside and the rate may fall toward the ECB’s ceiling by year-end.”
The statistics office said the main inflation drivers in September were higher prices for mineral oil products as well as clothing and shoes.
The state of Saxony said yesterday heating oil costs had jumped 4.4 per cent from August, while clothing and shoes were 9.2 per cent more expensive.
On a non-harmonised basis, German inflation accelerated to 2.6 per cent in September, also the fastest in three years, from 2.4 per cent last month. Economists forecast it would hold steady.
The ECB raised borrowing costs twice this year, bringing the benchmark rate to 1.5 per cent, to curb inflation even as the debt crisis worsened.
Economists at JPMorgan Chase, Royal Bank of Scotland and Barclays Capital forecast policy makers may reverse those rate increases at their October 6th meeting.
With money markets tightening, officials have indicated the ECB is more likely to take non-standard measures first before resorting to rate cuts.
Council members Ewald Nowotny and Luc Coene signalled the ECB may offer banks unlimited liquidity for as long as a year, while a euro-area central banking official speaking on condition of anonymity said policy makers will also debate restarting their covered-bond purchases. – (Bloomberg)
