Economists expect German inflation to start declining in June from the eight-year high it hit in May, strengthening the case for an interest rate cut to revive weak growth in the euro zone.
Preliminary data due to be released on Friday at the earliest will show a fall to 3.2 per cent year-on-year from 3.5 per cent in May, according to average predictions given by nine economists in a Reuters survey.
Economists said the June figures from Europe's largest economy would mark the start of a gradual decline in inflation across the euro zone, which has been fuelled by steep energy and food price increases in recent months.
They forecast the European Central Bank will shave at least half a percentage point off its 4.50 per cent benchmark rate by end-2001.
"The June inflation data will come as a relief to many, and will certainly strengthen the argument for an ECB rate cut, because it will show that inflation has peaked," said Mr Rainer Guntermann, an economist at Dresdner Kleinwort Wasserstein.
"I expect that the ECB will cut rates to 4 per cent by the end of this year with an initial reduction of 25 basis points in July," he added.
The comments suggest the ECB, confronted with a rapid economic slowdown and inflation rates well above its 2 per cent ceiling, may be facing less of a dilemma in its interest rate policy than would appear at first sight.
Euro zone inflation reached an eight-year high of 3.4 per cent but this is a lagging indicator, meaning the effects of recent rate cuts have not been fully felt.
Mr Uwe Angenendt, chief economist at Frankfurt-based BHF Bank, said the ECB was unlikely to be deterred from cutting rates just because headline inflation rates were above 2 per cent.
"There's definitely room for a rate cut. But a cut of 25 basis points [0.25 per cent] would have only a cosmetic effect. We need a reduction of at least 50 basis points [0.5 per cent] by the end of this year," Mr Angenendt added.
The ECB meets in Dublin on Thursday.