German inflation rate unchanged before crucial ECB meeting

November 29, 2016 8:09 AM EST

A customer weighs vegetable at a self service point of sale terminal in a store in Berlin, Germany August 26, 2016. REUTERS/Stefanie Loos


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By Michael Nienaber

BERLIN (Reuters) - German inflation unexpectedly remained unchanged in November, data showed on Tuesday, in a sign price pressures are still weak in Europe's biggest economy, despite an economic upturn spurred by the European Central Bank's ultra-loose monetary policy.

The ECB has provided unprecedented monetary stimulus in recent years to boost the economy and fight off deflation. Interest rates have been cut to zero or less and more than a trillion euros has been pumped into the economy through asset purchases.

With economic recovery still fragile and political uncertainties growing, the ECB is widely expected to announce after its meeting next week that its asset-purchase program will be extended beyond March 2017.

German consumer prices, harmonized to compare with other European countries (HICP), rose by 0.7 percent on the year, preliminary data from the Federal Statistics Office showed.

That was unchanged from October's inflation rate, which marked a two-year high, and it came in slightly weaker than a Reuters consensus forecast for a rise to 0.8 percent.

"The main reason for this is that energy prices rose less than expected, but this will change soon," DZ Bank economist Michael Holstein said, adding that negative base effects of falling oil prices would fade out in the comings months.

"We expect German annual inflation to reach 1.0 percent in December and possibly 1.5 percent at the beginning of next year," Holstein said, pointing to rising rents as one of the strongest inflation drivers in Germany.

On a non-harmonized basis, inflation was also unchanged, at 0.8 percent year-on-year in November, the office said.

Energy prices remained the main drag on the headline figure, falling more strongly than in the previous month, the data showed. Rising costs for food and rents were the most important drivers of inflation.

For the euro zone overall, economists polled by Reuters so far have expected the inflation rate, due on Wednesday, to edge up to 0.6 percent in November after 0.5 percent in October.

But Commerzbank analyst Marco Wagner said that Germany's unexpectedly weak inflation data, together with Spain's stable inflation reading, now pointed to the euro zone inflation figure also remaining unchanged in November.

Spanish EU-harmonized consumer prices rose by 0.5 percent year-on-year in November, flash data from the National Statistics Institute showed earlier on Tuesday, in line with a Reuters forecast and unchanged from October.

"Therefore, ECB is likely to extend its bond-buying program by six months," Wagner said.

The ECB predicts the bloc-wide inflation figure will stay below its target of just under 2 percent for some time despite its stimulus.

(Reporting by Michael Nienaber, editing by Larry King)



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