(Corrects euro-area inflation forecast in seventh paragraph.)
Inflation (GRCP2SAY) in Germany, Europe’s largest economy, unexpectedly accelerated in February as energy prices rose.
Inflation (GRCP2HYY), calculated using a harmonized European Union method, quickened to 2.5 percent from 2.3 percent in January, the Federal Statistics Office in Wiesbaden said today. Economists expected the rate to drop to 2.2 percent, according to the median of 25 forecasts in a Bloomberg News survey. Prices rose 0.9 percent in the month.
An escalation in tensions between Iran and opponents of its nuclear research program has driven oil prices up 9.6 percent this year. That threatens to keep euro-area inflation above the European Central Bank’s desired level of just below 2 percent, even as the region’s economy is forecast by the European Commission to contract this year.
“The oil-price development is pretty nasty,” said Klaus Baader, co-head of euro-area economic research at Societe Generale in London. “The return below the ECB’s 2 percent mark in Germany may not happen now until later in the year. Consumer demand is also contributing to price pressures.”
The German economy contracted 0.2 percent in the fourth quarter as government spending cuts across the euro area damped demand for the country’s exports. The commission forecasts German growth will slow to 0.6 percent this year from 3 percent in 2011.
By contrast, it projects economic contractions in Italy and Spain of 1.3 percent and 1 percent respectively. The 17-nation euro economy will shrink 0.3 percent in 2012, the commission said on Feb. 23.
Euro-area inflation will slow to 2.6 percent this month from 2.7 percent in January, according to a Bloomberg survey. That report is due from the European Union’s statistics office in Luxembourg on March 1.
The EU on Jan. 23 agreed to ban imports of oil from Iran starting July 1, as well as imports of petrochemicals. Iran said on Feb. 20 that it stopped selling oil to France and Britain in a move designed to pre-empt European sanctions.
“If we look at the disturbing developments in the Middle East, that could translate into higher inflation,” ECB Governing Council member Ewald Nowotny said in a speech in London today. “That could make life a bit more difficult.”
The ECB cut its main interest rate twice in the fourth quarter to a record low of 1 percent as the effects of the region’s debt crisis threatened to choke growth.
“Oil prices have risen very strongly in recent weeks and that will be the main component in inflation,” said Alexander Koch, an economist at UniCredit Group in Munich. “At the same time, the economy is slowing in comparison to last year and that will ease price pressures.”
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