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German inflation surges to 16-month high in September

Thursday, September 29, 2016 - 22:12

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German inflation in September jumped to its highest level since May 2015, data showed Thursday, in welcome news for the European Central Bank's efforts to boost prices with a massive stimulus programme.

[FRANKFURT] German inflation in September jumped to its highest level since May 2015, data showed Thursday, in welcome news for the European Central Bank's efforts to boost prices with a massive stimulus programme.

Inflation rose by 0.7 per cent this month compared to the year before, according to preliminary figures from Germany's federal statistics office Destatis.

The figure is still far off the ECB's inflation target of just below 2.0 per cent, but it beat analyst expectations and suggests the central bank's efforts are paying off in Europe's economic powerhouse.

Analysts surveyed by Factset had predicted a September increase of 0.6 per cent. Inflation stood at 0.4 per cent in July and August.

Consumer prices increased by 0.1 per cent on last month, Destatis said.

Within the consumer price basket, energy prices shrank by 3.6 per cent on the year, less than the 5.9-per cent year-on-year fall they saw in August.

Food prices were up 0.4 per cent on the year.

Capital Economics analyst Jennifer McKeown said the unexpectedly high inflation rise was partly down to climbing oil prices.

"Looking ahead, we expect annual energy inflation to rise fairly sharply over the coming months as previous falls in oil prices drop out of the annual comparison," she said.

But she cautioned that Germany had a long way to go before reaching the desired 2.0-per cent goal.

"We doubt that German inflation will rise to 2.0 on a sustained basis, implying that the ECB will continue to undershoot its target for the eurozone as a whole for the foreseeable future," she said.

"More policy support will be needed before long."

The ECB has set interest rates at record lows, bought up over a trillion euros in government and corporate bonds, and offered cheap loans to banks in a bid to stimulate economic growth and drive up inflation.

But inflation remains stubbornly low across the euro area, with eurozone consumer prices rising just 0.2 per cent in August.

The preliminary September data is based on input from several German states.

Destatis will release its final inflation results on October 13.

AFP

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