Bloomberg News

Five German States Say Inflation Quickened in September

September 28, 2011

(Updates with Baden-Wuerttemberg in second paragraph.)

Sept. 28 (Bloomberg) -- Inflation in five German states accelerated in September as prices for clothing and energy rose.

The inflation rate increased to 2.5 percent from 2.2 percent in Bavaria, to 2.8 percent from 2.3 percent in North Rhine-Westphalia and to 2.3 percent from 1.9 percent in Hesse, the states’ statistics offices said today. In Saxony and Brandenburg, annual inflation rates also climbed. while remaining unchanged in the state of Baden-Wuerttemberg.

Economists forecast that German inflation, calculated using a harmonized European Union method, will accelerate to 2.6 percent from 2.5 percent, the median of 20 estimates in a Bloomberg News survey shows. The Federal Statistics Office in Wiesbaden will release that report, based on data from six states, later today.

European Central Bank officials have signaled they will defy calls for lower interest rates next month amid a sovereign debt crisis that’s threatening to push the 17-nation euro region into recession. Inflation “is likely to stay above” the ECB’s 2 percent limit for the remainder of the year, the Frankfurt- based central bank said in its monthly report on Sept. 15.

“The ECB certainly has scope to ease,” said Silvio Peruzzo, euro-area economist at Royal Bank of Scotland Plc in London. “We’re heading for recession from the fourth quarter, signs of stress in financial markets are broad-based and market- based inflation expectations have declined. The inflation outlook is not the major concern of the ECB.”

Oil, Clothing

In Saxony, consumer prices rose 0.3 percent from the previous month, today’s report showed. Heating oil costs jumped 4.4 percent from August and fuel prices increased 1.9 percent. Clothing and shoes were 9.2 percent more expensive than a month earlier.

The ECB raised borrowing costs twice this year, bringing the benchmark rate to 1.5 percent, to curb inflation even as the debt crisis worsened. Economists at JPMorgan Chase & Co., Royal Bank of Scotland Group Plc and Barclays Capital forecast policy makers may reverse those rate increases at their Oct. 6 meeting.

With money markets tightening, officials have indicated the ECB is more likely to take non-standard measures first before resorting to rate cuts. Council members Ewald Nowotny and Luc Coene signaled the ECB may offer banks unlimited liquidity for as long as a year, while a euro-area central banking official speaking on condition of anonymity said policy makers will also debate restarting their covered-bond purchases.

ECB Rates

“The ECB is in a position to help, not so much on interest rates as in terms of market interventions,” said Laurent Bilke, global head of inflation strategy at Nomura International Plc in London. “Inflation is still pretty high and will stay high until the end of the year before slowing down in 2012.”

Euro-region inflation probably held at 2.5 percent in September, a Bloomberg survey shows. Eurostat, the European Union’s statistics office in Luxembourg, is scheduled to release that data on Sept. 30.

Raising rates was “justified” on the back of inflationary pressure and the economic recovery, ECB Executive Board member Lorenzo Bini Smaghi told Markit Magazine in an interview published yesterday. At the same time, “we never said that we were starting a series of interest-rate hikes.”

--With assistance from Christian Vits in Frankfurt. Editors: Matthew Brockett, Simone Meier

To contact the reporter on this story: Jana Randow in Frankfurt at

To contact the editor responsible for this story: Matthew Brockett at

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