Bloomberg News

Germany’s Harmonized Inflation Unexpectedly Held Steady in June

June 28, 2011

June 28 (Bloomberg) -- Inflation in Germany, Europe’s largest economy, unexpectedly held steady in June as the European Central Bank prepares to raise interest rates for a second time this year.

The inflation rate, calculated using a harmonized European Union method, held at 2.4 percent from May, the Federal Statistics Office in Wiesbaden said today in an initial estimate. Economists forecast inflation to quicken to 2.5 percent, according to the median of 19 estimates in a Bloomberg News survey. Prices remained unchanged from the previous month.

Germany’s recovery is showing few signs of a slowdown with declining unemployment encouraging consumer demand, giving companies more room to pass on higher costs. While oil prices have retreated over the past month, they’re still up 16 percent from a year earlier. ECB President Jean-Claude Trichet signaled today policy makers are ready to raise borrowing costs further from 1.25 percent next week.

“There’s no reason to give an all-clear on inflation, we’ll likely see significant price pressure in the coming months,” said Andreas Rees, chief German economist at UniCredit Group in Munich. “The ECB will certainly remain concerned about price developments.”

On a non-harmonized basis, inflation held at 2.3 percent in June and consumer prices rose 0.1 percent from the previous month, the statistics office said.

BASF SE said on June 16 it’s raising prices for formic acid in Europe and K+S AG, Europe’s biggest potash producer, in June increased prices for the crop nutrient.

The Bundesbank said on June 10 that “the prospects of the German economy experiencing a lengthy period of expansion are rising” and the recovery “has evolved into a broad-based upturn.” The Frankfurt-based central bank forecasts Europe’s largest economy will grow 3.1 percent this year after a record 3.6 percent expansion in 2010.

In the euro region, inflation probably accelerated to 2.8 percent in June from 2.7 percent in May, a separate survey showed. Eurostat, the European Union’s statistics office in Luxembourg, will release that data on June 30.

ECB Executive Board member Juergen Stark said yesterday that the bank is “ready not to leave the interest-rate increase from April stand by itself.” Trichet said in Amsterdam today that policy makers are “united on the goal of solidly anchoring inflation expectations.”

--Editors: Simone Meier, Jennifer M. Freedman

To contact the reporter on this story: Christian Vits in Frankfurt at cvits@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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