BERLIN: Germany's annual inflation reached its highest rate in eight months in January but overall price pressure remained weak, leaving analysts divided over the merits of more central bank stimulus.
Plunging oil prices have raised questions about whether the European Central Bank can pull inflation up towards its target for the whole euro zone, an annual rate of just below 2 percent.
German prices, harmonised to compare with other European countries (HICP), rose by 0.4 percent on the year in January, up from a 0.2 percent gain in December, preliminary data from the Federal Statistics Office showed on Thursday.
The reading, in line with the Reuters consensus forecast, was the strongest since May 2015 but still far from the ECB's target.
"For the ECB ... the challenge has not become any easier," ING Bank analyst Carsten Brzeski said. "In fact, German inflation data are welcome arguments for the opponents of additional ECB action."
In December, the central bank cut interest rates to fight low inflation but introduced no new policies, disappointing markets that hoped for more stimulus.
ECB President Mario Draghi has said the bank still has plenty of options left, suggesting it might act as early as March. A majority of economists in a Reuters poll said the ECB is likely to cut its deposit rate again in March.
For the euro zone, economists polled by Reuters expect the January inflation rate, due out on Friday, also increased to 0.4 percent from 0.2 percent in December.
"Looking ahead, energy inflation should rise in the months ahead, perhaps adding 1 percentage point to the headline rate by the end of the year," Capital Economics analyst Jennifer McKeown said regarding Germany.
Germany's robust labour market could lift wage growth and with it core inflation, she noted, but she doubted price pressure would build too much, given signs the economy might be slowing.
"And with fundamental deflationary pressures persisting elsewhere in the euro zone and inflation expectations worrying low, the ECB still has every reason to provide more policy support," McKeown added.
On a non-harmonised basis, German annual inflation rose to 0.5 percent in January from 0.3 percent in December.
A breakdown of the non-harmonised data showed energy prices remained the main drag, but they fell less than they had in December. Food inflation eased while rents picked up.
The statistics office said it would publish final consumer price data for January on Feb. 12.
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