German Inflation Rate Unexpectedly Held Steady in March

German inflation held steady at a two-year low in March.

The inflation rate in Europe’s largest economy, calculated using a harmonized European Union method, remained at 1.8 percent, the Federal Statistics Office in Wiesbaden said today. That’s the lowest since November 2010. Economists had forecast a decline to 1.7 percent, according to the median of 23 estimates in a Bloomberg News survey. Prices rose 0.4 percent from February.

While the 17-nation euro area remains mired in recession, the Bundesbank predicts the German economy returned to growth in the first quarter after a 0.6 percent contraction in the final three months of 2012. At the same time, consumption and prices may get a boost from higher wages. German workers won deals of as much as 6.5 percent last year and the IG Metall labor union is seeking pay increases of 5.5 percent in 2013.

“Inflation isn’t a concern at the moment and there’s not much to suggest this will change anytime soon,” said Jens- Oliver Niklasch, an economist at Landesbank Baden-Wuerttemberg in Stuttgart. “In the long run, the wage demands by the unions may put upward pressure again on German inflation.”

Non-harmonized inflation slowed to 1.4 percent in March from 1.5 percent in February, today’s report showed, with prices increasing 0.5 percent in the month. The Bundesbank forecasts inflation will average 1.5 percent this year and 1.6 percent in 2014.

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.

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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