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Five German States Say Inflation Slowed in April on Energy

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April 26 (Bloomberg) -- Inflation in five German states eased in April as energy prices rose at a slower pace.

Inflation rates declined in Saxony, Hesse, North Rhine-Westphalia, Baden-Wuerttemberg and Bavaria, the states’ statistics offices said today. Brandenburg’s rate held steady.

Economists forecast that German inflation, calculated using a harmonized European Union method, slowed to 2.2 percent from 2.3 percent, according to the median of 22 estimates in a Bloomberg News survey. The Federal Statistics Office will release that report, based on data from the six states, later today.

“In the short term, everything depends on the development of oil prices,” said Joerg Lueschow, head of economics at WestLB AG in Dusseldorf. “If oil prices are going to sink slightly, the inflation rate is probably going to fall below 2 percent in the second half of the year.”

European Central Bank President Mario Draghi yesterday softened his tone on the inflation outlook in the 17-nation euro area after oil prices eased and the sovereign debt crisis worsened, threatening to derail the region’s nascent economic recovery. Still, price pressures may build in Germany, Europe’s largest economy, as unemployment at a two-decade low helps workers win bigger pay increases and boosts consumer spending.

In Saxony, household energy costs rose 5.2 percent in the year, with gas 7.5 percent more expensive and heating oil 6.9 percent dearer. Fuel prices were up 5.2 percent. Seasonal foods such as fresh vegetables were 2.7 percent cheaper than in April last year. Consumer prices increased 0.1 percent from March.

ECB Changes View

The price of crude oil has dropped 5 percent in the last two months.

The ECB in March forecast inflation of 2.4 percent this year, in breach of its 2 percent limit, even as it predicted the region’s economy will contract 0.1 percent. Euro-area inflation was 2.7 percent in March.

ECB Vice President Vitor Constancio said yesterday that policy makers’ assessment of inflation risks has changed.

“Because we see everywhere economic growth is slowing down a little bit, so we have a different perspective now on the risk for inflation coming from oil and commodities compared to earlier,” he told reporters in Luxembourg. “We believe that oil prices will not continue to go up.”

“Risks to the outlook for price developments are broadly balanced,” Draghi told lawmakers yesterday. Three weeks ago he warned of “upside risks.”

IMF Forecasts

Bundesbank President Jens Weidmann nevertheless said on April 23 that the International Monetary Fund’s forecast for euro-area inflation to average 2 percent this year and slow to 1.6 percent in 2013 may be too optimistic.

“Taking into account rising energy prices and robust core inflation, prices could rise faster than the IMF expects,” Weidmann said. “Even if we are concerned about the impact on the peripheral countries, monetary policy makers must do what is necessary once upside risks for euro-area inflation increase.”

Inflation slowed the most in Baden-Wuerttemberg, where the rate dropped to 1.9 percent from 2.4 percent in March. The state said inflation was damped by the one-off impact of the abolition of university tuition fees.

                         Monthly            Yearly
                         Change             Change

Saxony                   0.1% (0.3%)       2.0% (2.2%)
Hesse                    0.2% (0.2%)       1.9% (2.0%)
Brandenburg              0.2% (0.2%)       2.1% (2.1%)
North Rhine-Westphalia   0.2% (0.4%)       1.7% (1.8%)
Baden-Wuerttemberg      -0.2% (0.3%)       1.9% (2.4%)
Bavaria                  0.3% (0.1%)       2.2% (2.3%)

To contact the reporters on this story: Jana Randow in Frankfurt at jrandow@bloomberg.net; Joseph de Weck in Frankfurt at jdeweck@bloomberg.net

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

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