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German State of Saxony Says Inflation Slowed to 16-Month Low

May 25 (Bloomberg) -- Inflation in the German state of Saxony slowed in May as Europe’s largest economy weakened.

The inflation rate dropped to 1.9 percent from 2 percent in April, the state’s statistics office in Kamenz said today. That’s the lowest since January 2011. Economists forecast German inflation, calculated using a harmonized European Union method, held at 2.2 percent, the median of nine estimates in a Bloomberg News survey shows. The Federal Statistics Office will release that report, based on data from six states, on May 29.

European Central Bank Governing Council member Andres Lipstok said this week that inflation risks are “coming down,” while concerns about the economic outlook remain. Speculation about a Greek exit from the monetary union is curbing confidence among executives and investors at a time when at least five of the region’s 17 economies are in recession, leaving companies with less room to pass on higher costs.

“For Germany itself, the ECB’s monetary policy is probably too expansive and German consumers will eventually pay the bill,” said Kristian Toedtmann, a senior economist at Dekabank in Frankfurt. “With the deflationary pressures in the periphery, Germany will need to have above average euro area inflation, if the ECB wants to keep its 2 percent target.”

In Saxony, consumer prices fell 0.2 percent from April, today’s report showed. The cost of household energy rose 5.7 percent from a year ago after increasing an annual 5.2 percent in April. Gas prices advanced 7.4 percent in the year and heating oil was 10.8 percent more expensive.

The ECB, which will present new inflation forecasts on June 7, expects euro-area annual consumer-price gains to drop below its 2 percent price-stability threshold early next year.

                         Monthly            Yearly
                         Change             Change

Saxony                  -0.2 (0.1%)         1.9 (2.0%)
Hesse                    n/a (0.2%)         n/a (1.9%)
Bavaria                  n/a (0.3%)         n/a (2.2%)
Brandenburg              n/a (0.2%)         n/a (2.1%)
North Rhine-Westphalia   n/a (0.2%)         n/a (1.7%)
Baden-Wuerttemberg       n/a (-0.2%)        n/a (1.9%)

To contact the reporter on this story: Jana Randow in Frankfurt at jrandow@bloomberg.net

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

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