German Inflation Rate Held Steady at Two-Year High in March

German inflation stayed at a two- year high in March after energy prices surged.

The inflation rate, calculated using a harmonized European Union method, remained at 2.2 percent, the Federal Statistics Office in Wiesbaden said today. That’s the highest since October 2008 and in line with the median of 16 forecasts in a Bloomberg News survey. In the month, prices rose 0.5 percent.

Rising energy and food costs are fanning inflation in Germany, Europe’s largest economy, increasing pressure on the European Central Bank to raise interest rates. Officials have signaled the impact of the Japanese earthquake will not deter them from lifting borrowing costs for the first time in almost three years next month.

“If the inflation rate stays much above 2 percent, then there will be higher wage demands this year,” said Heinrich Bayer, an economist at Deutsche Postbank AG in Bonn. “That’s exactly what the European Central Bank fears.”

Wage increases to compensate for higher energy prices may entrench faster inflation. Crude oil prices have increased 33 percent in the past six months, surpassing $100 a barrel amid political tensions in the Middle East and North Africa.

On a non-harmonized basis, German inflation stayed at 2.1 percent in March, also a two-year high.

Euro-Area Inflation

The ECB aims to keep inflation in the 17-nation euro region just below 2 percent. Euro-area inflation probably stayed at 2.4 percent this month, according to another survey of economists. That report is due from the EU’s statistics office in Luxembourg on March. 31.

Adding to inflation pressure is Germany’s booming economy, with companies increasing hiring and spending to meet export orders.

Business confidence held close to a record high this month, the Munich-based Ifo institute said last week. Still, consumer confidence will decline for the first time in 10 months in April as inflation erodes household purchasing power, market research company GfK AG said today.

The Bundesbank expects the economy to grow 2.5 percent this year after it expanded a record 3.6 percent in 2010.

To contact the reporter on this story: Jeff Black in Frankfurt jblack25@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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