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Three of Six German States Say Inflation Rates Eased in May

Inflation eased in three German states in May.

Inflation slowed in Brandenburg, Saxony and North Rhine-Westphalia, was unchanged in Hesse and Baden-Wuerttemberg and quickened in Bavaria, reports from the states’ statistics offices showed. Consumer prices in all six states fell from a month earlier.

Economists forecast that German inflation, calculated using a harmonized European Union method, will remain at 2.2 percent this month, the median of 19 estimates in a Bloomberg News survey shows. The Federal Statistics Office in Wiesbaden will release that report, based on data from the six states, later today.

Inflation pressures are abating after oil prices dropped and as speculation about a Greek exit from Europe’s monetary union curbs confidence among companies and households, damping the economic outlook. At the same time, German unemployment at a two-decade low and rising wages are bolstering consumer spending.

“Energy prices have decreased, also on a year-on-year basis, which explains why German inflation might not increase in the short term,” said Aline Schuiling, an economist at ABN Amro Bank NV in Amsterdam. Still, “core inflation will go up” due to the relatively robust economy and tight labor market, she said.

Oil Prices

The price of oil has dropped almost 14 percent this month and is now 11 percent lower than it was a year ago. In Hesse, household energy costs were up 5.6 percent in the year and down 0.4 percent in the month. Fuel was 3.8 percent cheaper than in April. In North Rhine-Westphalia, the price of butter dropped 9 percent in the month and 22 percent in the year.

While Germany’s economy expanded a better-than-forecast 0.5 percent in the first quarter, helping to keep the euro area as a whole out of recession, reports last week showed German business confidence fell in May and manufacturing contracted at the fastest pace in almost three years.

Concern about Greece’s future in the euro region mounted after elections this month failed to produce a government and saw support grow for parties opposed to austerity measures. A second ballot will be held on June 17.

The European Central Bank, which will present new inflation forecasts in June, currently expects the euro-area rate to drop below its 2 percent limit early next year.

                         Monthly            Yearly
                         Change             Change

Saxony                  -0.2 (0.1%)         1.9 (2.0%)
Hesse                   -0.2 (0.2%)         1.9 (1.9%)
Bavaria                 -0.2 (0.3%)         2.3 (2.2%)
Brandenburg             -0.2 (0.2%)         2.0 (2.1%)
North Rhine-Westphalia  -0.3 (0.2%)         1.5 (1.7%)
Baden-Wuerttemberg      -0.2 (-0.2%)        1.9 (1.9%)

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