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Higher German prices could help spur euro zone inflation

By Michelle Martin

BERLIN (Reuters) – German consumer prices rose in March for the first time this year when harmonised to compare with other European Union countries, and could help spur euro zone inflation.

EU-harmonised consumer prices were up 0.1 percent on the year in Europe’s largest economy after dropping 0.1 percent in February, preliminary data from the Federal Statistics Office showed on Monday.

Some economists said the pickup in German inflation, along with data on Monday showing Spain’s EU-harmonised inflation rate rose to -0.7 percent in March from -1.2 percent in February, would likely give the euro zone figure due to be published on Tuesday a boost.

The German reading was in line with a Reuters forecast. Germany’s non EU-harmonised national consumer price index rose by 0.3 percent on the year with service prices increasing while food and energy prices dropped less sharply than in the previous month.

Christian Schulz, senior economist at Berenberg Bank, said the Spanish and German figures could even help the euro zone break a run of negative inflation figures: “On the basis of these two countries, there is a chance that euro zone inflation could climb out of negative territory in March.”

Still, even if inflation returned in the euro zone it would remain well below the European Central Bank’s target of close to but just below 2 percent over the medium term.

A Reuters poll conducted before Monday’s data was published showed economists expect euro zone consumer prices to fall by 0.1 percent in the single currency bloc in March after dropping by 0.3 percent in February. (ECONEZ)

Jennifer McKeown, economist at Capital Economics, said that because German wage growth has been moderate at a time when the economy still has spare capacity, core inflation is not likely to pick up suddenly, especially while oil is cheap.

“We expect energy prices to continue to exert a heavy drag on the headline rate for the next six months or so, which may see headline inflation dip back into negative territory in the near future. But the drag should ease somewhat later this year.”

(Editing by Noah Barkin and Susan Fenton)

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