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German Inflation Rate Rose in May From 2 1/2-Year Low

May 29 (Bloomberg) -- German inflation accelerated more than economists expected in May after falling to the lowest level since August 2010 the previous month.

The inflation rate in Europe’s largest economy, calculated using a harmonized European Union method, jumped to 1.7 percent from 1.1 percent in April, the Federal Statistics Office in Wiesbaden said today. Economists had expected an increase to 1.4 percent, according to the median of 22 estimates in a Bloomberg News survey. Prices rose 0.3 percent on the month.

“Inflation clearly isn’t on the descent but we shouldn’t overestimate today’s data,” said Christian Lips, an economist at NordLB in Hanover. “Rates will remain below 2 percent this year and next because the economic momentum is simply too weak.”

The European Central Bank cut its benchmark interest rate to a record low of 0.5 percent this month as the 17-member euro area remains mired in its longest-ever recession. President Mario Draghi has indicated that policy makers will act again if the economy outlook deteriorates.

Inflation in the currency union probably accelerated to 1.4 percent in May from 1.2 percent the previous month, according to a separate survey of economists conducted before today’s release. The EU’s statistics office in Luxembourg will publish that report on May 31.

Risks to the outlook for inflation are “broadly balanced,” ECB President Mario Draghi said after the last rate decision on May 2. The ECB will publish new forecasts for growth and inflation at its next rate-setting meeting on June 6.

The Bundesbank has forecast the German economy will expand 0.4 percent this year, outpacing euro-area peers. Inflation is seen averaging at 1.5 percent this year and 1.6 percent in 2014.

Non-harmonized inflation accelerated to 1.5 percent, with prices rising 0.4 percent from April.

To contact the reporter on this story: Jeff Black in Frankfurt at jblack25@bloomberg.net

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

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