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German inflation further picks up in October, state data suggest

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German inflation accelerated further in October, regional data suggested on Friday, a welcome sign for the European Central Bank that its ultra-loose monetary policy is gradually pushing up price pressures in Europe's biggest economy.

[BERLIN] German inflation accelerated further in October, regional data suggested on Friday, a welcome sign for the European Central Bank that its ultra-loose monetary policy is gradually pushing up price pressures in Europe's biggest economy.

The ECB has unleashed unprecedented stimulus in recent years, cutting interest rates aggressively and pumping more than a trillion euros into the economy through asset purchases.

A recovery in German inflation would give Bundesbank president and ECB rate setter Jens Weidmann more scope to argue for a reduction in the ECB's bond-buying programme, a scheme that he has often criticised.

Preliminary data from six German states, including the most populous state of North Rhine-Westphalia, showed that annual inflation picked up in October.

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Consumer prices rose by 0.9 per cent on the year in North Rhine-Westphalia, Saxony and Brandenburg and by 0.8 per cent in Bavaria, Baden-Wuerttemberg and Hesse.

The state readings, which are not harmonised to compare with other eurozone countries, will feed into nationwide inflation data due out at 1200 GMT.

Capital Economics analyst Jennifer McKeown said the state data suggested that German EU-harmonised consumer prices overall rose by 0.6 per cent on the year after an increase of 0.5 per cent in September. This would be in line with a Reuters consensus forecast and the highest reading since May 2015.

Ms McKeown expected a recent increase in oil prices and higher energy prices to push up the pan-German inflation figure to nearly 2 per cent in the first half of next year.

For the overall eurozone, economists polled by Reuters expect the inflation rate, due on Monday, to edge up to 0.5 per cent in October after 0.4 per cent in September.

The ECB expects the bloc-wide inflation figure to stay below its target of just under 2 per cent for some time despite its stimulus.

"We therefore expect the ECB to further loosen its monetary policy, probably by extending its asset purchases by six months at the current pace in December," Ms McKeown said.

REUTERS

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