German price rises should help eurozone emerge from deflation

[BERLIN] German annual inflation accelerated faster than forecast in April when harmonised to compare with other European countries, and remained above zero for a second straight month, suggesting the euro zone is leaving the spectre of deflation behind.

EU-harmonised consumer prices climbed an annual 0.3 per cent in Europe's largest economy after rising 0.1 per cent in March, preliminary data from the Federal Statistics Office showed on Wednesday.

That compared with the Reuters consensus forecast for a 0.2 per cent rise.

Christian Schulz, economist at Berenberg Bank, said the moderate pick-up in inflation was a good sign for the eurozone.

"(It) suggests that the euro zone has probably officially emerged from deflation after four months," he said. "German and eurozone inflation rates are likely to continue to rise, particularly at the end of this year, when the oil price drop is eliminated from the annual comparison."

A Reuters poll conducted before the German data was published showed economists expect prices in the eurozone to be unchanged in April after falling by 0.1 per cent in March. The preliminary eurozone rate is due to be published on Thursday.

Earlier on Wednesday, data showed Belgian annual inflation turned positive for the first time in six months, also suggesting the eurozone is edging away from deflation.

However, German inflation remains far below the European Central Bank's target for the broader eurozone of just below 2 per cent over the medium term.

A breakdown of non-harmonised data showed higher food and service costs, including rent, drove German inflation higher.

Jonathan Loynes, chief European economist at Capital Economics, said Germany's national inflation rate - which picked up to 0.4 per cent - was likely to keep rising in the coming months as energy prices increase and a weaker euro pushes import prices up.

"But we don't expect a sharp pick-up in price pressures, given relatively subdued costs, the solid but unspectacular pace of growth, and probable spare capacity in the economy," he said.

The Federal Statistics Office said it would publish final consumer price data for April on May 13.

REUTERS