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German Inflation Remains Unchanged at Three-Month Low

German inflation was unchanged at the lowest rate in three months in September, helping bolster domestic consumption in Europe’s largest economy.

Annual consumer-price growth, calculated using a harmonized European Union method, was 1.6 percent, the Federal Statistics Office in Wiesbaden said today. That’s in line with the median estimate of 22 economists in a Bloomberg News survey. It also matches August’s rate of 1.6 percent, which was the lowest since May. Prices were unchanged from the previous month.

The Bundesbank said this week that slowing inflation is helping to support an “extraordinarily good” consumer climate in Germany. The European Central Bank forecasts that prices in the 17-nation euro area, Germany’s biggest trading partner, will stay contained amid a gradual economic recovery.

“Inflationary pressure in Germany is still hard to find,” said Carsten Brzeski, senior economist at ING Groep NV in Brussels. “The often-expected catching up of German prices and wages is still not happening. The ECB can continue with its highly accommodative monetary policy.”

Germany is benefiting from unemployment near a two-decade low and the end of the euro area’s longest-ever recession. That helped Angela Merkel’s Christian Democrats take the largest share of the vote in Sept. 22 elections and set her up for a third term as chancellor.

Growth Risks

German consumer confidence will climb to the highest level next month since September 2007, according to a survey by Nuremberg-based GfK AG. Nominal retail sales in July were higher than a year ago, even as they dropped in the month.

While the economy is continuing to grow, it’s not matching the 0.7 percent pace of the second quarter, the Bundesbank said in its monthly bulletin on Sept. 23. The Frankfurt-based central bank forecasts German gross domestic product will expand 0.3 percent this year and predicts average inflation of 1.6 percent, dropping to 1.5 percent in 2014.

The euro-area economy expanded 0.3 percent in the three months through June to snap six quarters of contraction. GDP will still shrink 0.4 percent this year before expanding 1 percent in 2014, the ECB predicts. Inflation in the region will average 1.5 percent this year and 1.3 percent next year, it forecasts. That’s below the central bank’s 2 percent goal for the measure.

Rate Outlook

The ECB has pledged to keep its official interest rates at or below the current record lows to support the region’s recovery. The bank’s benchmark rate is at 0.5 percent.

Economic confidence in the euro area increased more than economists forecast in September, a report by the European Commission in Brussels showed today. An index of executive and consumer sentiment rose for a fifth month to 96.9 from a revised 95.3 in August. That beat the median estimate of 96 in a Bloomberg survey of 26 economists.

“This is the beginning of what could be a solid recovery,” said Robert Wood, an economist at Berenberg Bank in London. “The economy could beat the ECB’s relatively cautious forecasts, but very low rates of inflation should keep any premature talk of policy tightening at bay. The ECB will keep rates low well into next year.”

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