Stuttgart, Germany, Nov. 25 (Bloomberg) -- German inflation unexpectedly slowed in November, reports from six German states showed, giving the European Central Bank leeway to lower interest rates to boost growth. Consumer prices probably rose 1.1 percent in the month to mid- November from a year ago, after increasing 1.3 percent in October, analysts said. They had expected inflation to accelerate before the reports. From a month ago, prices dropped 0.4 percent, they said. ``A fall in German inflation in November would probably result in a fall in euro-zone inflation,'' said Mike Taylor, an economist at Merrill Lynch & Co. in London. ``Lower inflation means that the ECB are more likely to cut in December'' as ``very weak growth prospects'' are damping inflation.
The ECB, which aims to keep price increases below 2 percent, has said inflation will probably slow next year, suggesting it may pare credit costs as early as next month, investors say. The economy of the 12 euro countries will grow at the slowest pace in nine years in 2002, the European Commission has said. Futures trading suggests the bank will reduce its benchmark rate from 3.25 percent as soon as next month. The implied yield on the three-month Euribor contract maturing in December is 2.94 percent. The current money market rate is at 3.04 percent Economic forecasts now ``are weaker than the forecasts of the spring and that will have consequences also on the level of inflation,'' ECB council member Guy Quaden said on Friday. The bank's 18 policy makers next meet on Dec. 5 to discuss rates.
Producer, Import Prices
The yield on the German 5 percent bund due in July 2012 rose 4 basis points today to 4.55 percent at 12:01 p.m. in Frankfurt. The Federal Statistics Office said it will publish preliminary inflation figures, based on the six state reports, for all of Germany in the afternoon. To be sure, German producer and import prices rose more than expected from a year ago in October as basic chemicals and crude oil became more expensive. This suggests there may be a ``small increase'' in Germany's inflation rate in December and January, said Ralph Solveen, an economist at Commerzbank AG in Frankfurt. Oil prices, when measured as Brent crude futures, rose more than a quarter in October from the same month a year ago. Italian inflation rose at the fastest pace in more than a year in November, led by fresh foods, furniture and winter clothing, reports from 12 cities showed. Inflation was 2.8 percent, according to analysts' estimates based on the data.
Struggling to Grow
Germany and Belgium had the lowest inflation rate in the 12 nations sharing the euro last month. The German economy barely expanded for a third quarter in the three months to September. ``We do not see a substantial improvement in the economic outlook,'' Bayer AG's Chief Financial Officer Klaus Kuehn said in an interview. ``We were able to implement some price increases in the third quarter, but at a very depressed level.'' Consumer prices in Saxony, the last state to report, fell 0.4 percent from October, the state's statistics office said. The drop was led by heating oil, fuels and food, it said. Saxony's inflation rate dropped to 0.5 percent from 0.6 percent in October. //www.quote.bloomberg.com