German prices on track for first rise this year

BERLIN: German consumer prices are set to rise in March after falling in the first two months of this year, data from some federal states suggested on Monday, but inflation in Europe's largest economy is still likely to remain very low.

Data from four states showed the cost of living picking up on an annual basis. In North Rhine-Westphalia (NRW), Germany's most populous state and a bellwether for the national rate, prices climbed by 0.2 percent on the year in March after coming in unchanged in February.

Jennifer McKeown, senior economist at Capital Economics, said data from Germany's regions suggested consumer prices rose by about 0.1 percent on an annual basis when harmonised to compare with other European Union countries (HICP).

"Data from the German states point to a rise in German inflation back into positive territory in March, but underlying price pressures are still weak," she said.

A Reuters poll conducted before the state data was published showed economists expect yearly consumer prices to rise by 0.1 percent on a harmonised basis and by 0.3 percent in the national index.

That would still be well below the European Central Bank's inflation target for the euro zone as a whole of just under 2 percent.

Separate data on Monday showed Spanish EU-harmonised consumer prices also fell well short of the target, though they did not drop as sharply as forecast. They were down 0.7 percent annually in March compared with their 1.2 percent fall the previous month.

Preliminary euro zone data, due out on Tuesday, is expected to show consumer prices fell by 0.1 percent in the single currency bloc in March after dropping by 0.3 percent in February.

McKeown said cheap oil would probably continue to drag on Germany's inflation rate for the remainder of 2015, though that effect could weaken over the course of the year. Because wage growth has been moderate at a time when the economy still has spare capacity, core inflation is not likely to pick up suddenly.

Pan-German inflation data is due to be published at 1200 GMT on Monday.