Bloomberg News

Six German States Say Inflation Rates Declined in December

December 29, 2011

(Updates with Baden-Wuerttemberg from first paragraph.)

Dec. 29 (Bloomberg) -- Inflation in six German states slowed in December as heating-oil and fuel costs declined.

The inflation rate eased to 2.2 percent from 2.5 percent in Baden-Wuerttemberg and to 2.4 percent from 2.5 percent in Bavaria, the states’ statistics offices said today. Inflation also slowed in Hesse, Saxony, Brandenburg and North Rhine- Westphalia. Economists forecast that German inflation, calculated using a harmonized European Union method, will slow to 2.4 percent from 2.8 percent, the median of 18 estimates in a Bloomberg News survey shows. The Federal Statistics Office in Wiesbaden will release that report, based on data from the six states, later today.

The 17-member euro region faces recession as cash-strapped governments cut spending to contain the sovereign debt crisis. The European Central Bank lowered its benchmark interest rate for a second straight month in December, saying economic activity is subdued and price pressures will ease.

“German inflation will come down pretty rapidly now and will probably be lower than the euro-area average next year,” said Jacques Cailloux, chief European economist at Royal Bank of Scotland Group Plc in London. “This will make it easier for the ECB to keep cutting interest rates.”

Cailloux forecasts policy makers will lower the key rate to 0.5 percent by the end of the first quarter from its current 1 percent.

Euro-Area Inflation

Euro-area inflation will slow to 2.8 percent this month from 3 percent in November, according to the median of 24 estimates in another Bloomberg survey. That report is due on Jan. 4.

The Standard & Poor’s GSCI Index of 24 commodities has retreated 15 percent from its 32-month high in April as Europe’s debt crisis curbed prospects for global growth. In London, hedge funds and other money managers reduced bullish bets on Brent crude by 11,121 contracts in the week ended Dec. 20, according to data from ICE Futures Europe.

In Saxony, fuel prices fell 1.5 percent in December and heating oil was 3.1 percent cheaper. Consumer prices rose 0.7 percent in the month on higher seasonal food and accommodation costs.

“Cost, wage and price pressures in the euro area should remain modest over the policy-relevant horizon,” the ECB said Dec. 15 in its monthly bulletin. “Inflation is likely to stay above 2 percent for several months to come, before declining to below 2 percent,” the bank’s inflation ceiling, it said.

The German economy will probably avoid a recession even as orders from its main euro-area trading partners wane during the debt crisis, two economic institutes that advise Chancellor Angela Merkel’s government said on Dec. 20.

--With assistance from Gabi Thesing in London. Editor: Matthew Brockett

To contact the reporter on this story: Rainer Buergin in Berlin at rbuergin1@bloomberg.net

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


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