Sept. 28 (Bloomberg) -- Consumer prices in five German states fell in September from a year earlier after energy costs declined.

In Baden-Wuerttemberg, prices fell 0.3 percent from September last year after rising an annual 0.1 percent in August, the state’s statistics office in Stuttgart said today. In North Rhine-Westphalia, Germany’s most populous state, the inflation rate fell to minus 0.3 percent from zero, while the pace of annual price declines accelerated in Saxony, Hesse and Brandenburg.

Economists predict German harmonized consumer prices will post a 0.2 percent annual decline, the median of 16 forecasts in a Bloomberg News survey shows. The Federal Statistics Office in Wiesbaden will publish its first estimate of German inflation later today, based on reports from six states.

Oil prices have dropped about 32 percent in the past year during the biggest global economic slump since the Great Depression, dragging down inflation rates around the world. Prices may begin to rise again as the impact of cheap oil drops out of annual data and the economic recovery gathers momentum. Germany’s economy, Europe’s largest, expanded for the first time in five quarters in the three months through June.

‘Temporary’

“The price declines are highly focused on energy and seasonal goods, such as a package holidays, so I’m not worried, it’s a temporary thing,” said Karsten Junius, a senior economist at Dekabank in Frankfurt. “By the end of this year, German annual inflation should return to a positive rate of somewhere between 0.5 percent and 1 percent.”

In Saxony, heating oil was 34.9 percent cheaper in September than a year earlier. Fuel prices declined 13.6 percent, and food and non-alcoholic drinks cost 2.9 percent less than in September last year. Tobacco was 5.3 percent more expensive. Excluding energy and seasonal foods, the inflation rate was 0.9 percent.

The economic slump has damped consumer spending, prompting manufacturers and retailers to cut prices. Friedrich Stara, a board member at detergent maker Henkel AG, said on Sept. 25 that he sees “rising pressure on prices” in western Europe.

In a national election yesterday, Chancellor Angela Merkel’s Christian Democrats and the Free Democrats, her preferred allies, won enough votes to form the next German government. The result makes it more likely Merkel will push through tax cuts.

Interest Rates

The European Central Bank has held its benchmark interest rate at a record low of 1 percent since May this year and is flooding banks with cheap cash to help ease credit constraints and revive growth. ECB Executive Board member Lorenzo Bini Smaghi said on Sept. 17 that there are no inflation risks in the euro region and low interest rates will aid the recovery.

In the 16-nation euro region, consumer prices dropped 0.2 percent in August from a year earlier. Eurostat, the European Union’s statistics arm in Luxembourg, will publish September data on Sept. 30.

                         Monthly            Yearly
                         Change             Change
North Rhine-Westphalia  -0.3% (0.3%)      -0.3% (0.0)
Saxony                  -0.3% (0.1%)      -0.3% (-0.1%)
Hesse                   -0.5% (0.3%)      -0.8% (-0.3%)
Brandenburg             -0.3% (0.1%)      -0.4% (-0.2%)
Bavaria                  n/a% (0.2%)       n/a% (0.3%)
Baden-Wuerttemberg      -0.4% (0.4%)      -0.3% (0.1%)

To contact the reporter on this story: Frances Robinson in Frankfurt at frobinson6@bloomberg.net

Last Updated: September 28, 2009 06:35 EDT