BERLIN, March 24 - Consumer price data from four German states suggest inflation in Europe's largest economy eased in March, with a sharp price fall in seasonal foods offsetting an oil price jump ahead of the Iraq war. German inflation is likely to have slowed to 1.1 or 1.2 percent year-on-year from 1.3 percent in February, economists said after analysing data from North Rhine-Westphalia, Hesse, Bavaria and Brandenburg. That figure is below the consensus forecast in a poll for a year-on-year rate of 1.3 percent and a month-on-month rate of 0.2 percent, and contrasts with figures from Italy last week showing inflation accelerating to 2.7 percent.
"We would be looking at overall German inflation to be 1.1 percent to 1.2 percent. The fall is partly because of the sharp rise in March last year, due to the euro effect and foodstuffs," said Harald Joerg, an economist at Dresdner Bank. Inflation spiked up in Germany last year as a result of euro-related price hikes, while fresh food prices soared when unusually cold weather in parts of Europe damaged crops.
This effect fell out of the statistics in March, however, and the states reported declines in seasonal foods ranging from 6.8 percent to 8.6 percent year-on-year, helping push down the headline annual rates. Economists said as long as the Iraq conflict is brought to a swift end, oil prices should remain calm and keep a lid on consumer prices in Germany and the euro zone as a whole. "There's no sign of rising inflation in Germany and given the most recent oil price developments we can expect a further easing of inflation pressures in April," said Ulrich Kater, an economist at Deka Bank. Crude oil prices jumped to well over $30 per barrel earlier this year, but tumbled to below $25 a barrel last week after the United States launched military strikes on Iraq. However crude oil price crept up to $25.73 on Monday as strong Iraqi resistance to U.S. and British attacks dampened hopes of a quick end to the war. Analysts said a prolonged Gulf War would propel oil prices back over $30 and push up the euro zone's overall inflation rate, although consumer price developments in Germany -- where inflation has hovered around one percent for almost a year -- would likely remain benign.
"From a German perspective, the optimism about the Iraq conflict is no longer there," said Joerg Kraemer, an economist at Invesco Asset Management. "If oil prices climbed to $33 or $34 a barrel, euro zone inflation could remain over two percent, but generally, inflation in Germany is much more favourable than that," he added.
OIL PRICE FILTERS THROUGH
North Rhine-Westphalia, Brandenburg, Hesse and Bavaria were the first of six German states to report data used to compile preliminary inflation data for the whole country. They reported year-on-year inflation rates ranging from 0.8 in Hesse -- the lowest rate in 3 1/2 years -- to 1.4 percent in Bavaria. North Rhine-Westphalia said prices inched up by 1.3 percent year-on-year from 1.2 percent in February and Brandenburg said prices rose 1.1 percent on the year. Month-on-month, price developments ranged from a decline of 0.1 percent to a rise of 0.2 percent. The states of Saxony and Baden-Wuerttemberg are expected to publish March consumer price data on Tuesday.
Data released earlier on Monday showed import prices rose in February by 0.6 percent compared with January, reflecting the spike in oil prices before the war in Iraq began. The Federal Statistics Office said fuel prices rose by 11.4 percent, led by 14.9 percent increases for diesel and heating oil. End prices for many fuels at German petrol pumps hit record levels in February, helping push consumer prices up 0.5 percent on the month. But annual inflation was a moderate 1.3 percent.//www.s.com