German inflation stays ultra low in Aug, state data suggests

BERLIN: German consumer prices remained ultra low in August, data from states around the country suggest, putting pressure on the European Central Bank to consider additional stimulus measures as falling oil prices and a slowdown in China curb inflation.

In North Rhine-Westphalia (NRW), the federal state that tends to act as a bellwether for the national inflation rate, consumer prices held steady at 0.2 percent on the year in August.

In three other states annual inflation remained unchanged, while it slowed in one and turned negative in another. State data is used to calculate Germany's national inflation rate, due out at 1200 GMT. Capital Economics economist Jennifer McKeown said data from the states suggested annual consumer price inflation in Europe's largest economy remained unchanged at 0.1 percent when harmonised to compare with other European countries.

This is in line with the Reuters consensus forecast. ING economist Carsten Brzeski said he would not have been surprised if inflation had fallen to zero or even slipped into negative territory given the sharp fall in energy prices, but noted this could still pass through into next month's data. Nonetheless, the subdued reading is a headache for the ECB, which has been trying to push inflation in the euro zone back towards its target of just below 2 percent over the medium term via bond-buying, or quantitative easing (QE).

"This entire discussion about whether deflation has returned will haunt the ECB next week," he said. The ECB is widely expected to announce downwardly revised inflation forecasts after its next governing council meeting on Sept. 3.

The central bank's chief economist, Peter Praet, said earlier this week that it stands ready to do more and has pledged to beef up its asset-buying programme if necessary.

"I think they will give hints next week that they might step up QE rather than reducing the QE efforts but right now it's too early for them to take concrete action," Brzeski said.

Other data published on Friday showed Spanish EU-harmonised consumer prices fell more steeply than forecast in August, declining by 0.5 percent year-on-year after a reading of 0.0 percent the previous month.

Preliminary inflation data for the euro zone is due on Aug. 31 and economists polled by Reuters expect that reading to hold steady at 0.2 percent.