German Inflation Probably Slowed to Two-Year Low in March

German inflation probably slowed in March to the lowest level in more than two years.

The inflation rate in Europe’s largest economy, calculated using a harmonized European Union method, fell to 1.7 percent from 1.8 percent in February, according to the median forecast of 23 economists in a Bloomberg News survey. That would be the lowest since November 2010. Saxony reported an inflation rate of 1.5 percent today while Hesse and Brandenburg posted rates of 1.3 percent. The Federal Statistics Office in Wiesbaden will publish national data at 2 p.m.

“The inflation rate in Germany will remain low for quite some time,” said Stefan Rieke, an economist at BHF Bank AG in Frankfurt. “The economy is growing again but not fast enough to put significant upward pressure on consumer prices. As long as this doesn’t change, high inflation rates will definitely not be a concern.”

While the 17-nation euro area remains mired in recession, the Bundesbank predicts the German economy found its way back to growth in the first quarter after a 0.6 percent contraction in the final three months of 2012. It forecasts inflation will average 1.5 percent this year and 1.6 percent in 2014.

Prices for fuel decreased 6.4 percent in Hesse and Saxony and 5.9 percent in Brandenburg in March from a year earlier, while food prices rose 4 percent in Hesse, 4.2 percent in Saxony and 3.2 percent in Brandenburg.

Car Sales

The sovereign debt crisis in the euro area, Germany’s biggest export market, has forced some companies to reduce prices.

Volkswagen AG (VOW) and Bayerische Motoren Werke AG (BMW) last month predicted a “difficult” 2013 as the European auto market contracts, vehicle prices in the region drop and growth in China slows.

At the same time, consumption and prices in Germany may get a boost this year from higher wages. German workers won deals of as much as 6.5 percent last year and IG Metall is seeking pay increases of 5.5 percent in 2013.

In the euro area, inflation probably slowed to 1.6 percent in March from 1.8 percent in February, according to a separate survey of economists. The European Union statistic’s office in Luxembourg will publish that report at 11 a.m. tomorrow.

European Central Bank President Mario Draghi last month said the region’s inflation outlook is “broadly balanced,” even though the risks to the economy are on the downside.

The Frankfurt-based central bank on March 7 cut its inflation projection for 2014 to 1.3 percent from 1.4 percent and predicted annual consumer-price gains will average 1.6 percent this year. It aims to keep inflation just below 2 percent.

To contact the reporter on this story: Stefan Riecher in Frankfurt at sriecher@bloomberg.net

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

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