German Inflation Slows as ECB Prepares for Rate Meeting

German inflation slowed in March, indicating subdued price gains in Europe’s largest economy that could bolster the case for action by the European Central Bank.

Inflation, calculated using a harmonized European Union method, was 0.9 percent, down from 1 percent in February, the Federal Statistics Office said today. That’s in line with the median of 26 estimates in a Bloomberg News survey. Prices increased 0.3 percent from the previous month, less than economists predicted. Eurostat, the EU’s statistics office, will release euro-area inflation data on March 31.

The ECB’s Governing Council, which meets next week to agree on interest rates, has warned it could take action if the medium-term outlook for inflation in the currency bloc deteriorates. At the same time, the arrival of Easter holidays in April this year has the potential to push price gains higher next month.

“The ECB cannot afford to see downside risks for inflation expectations to materialize,” said Annalisa Piazza, an economist at Newedge Strategy in London. Still, “the ECB is well aware that inflation will remain well below 2 percent for a prolonged period of time and some seasonal volatility is expected to be tolerated near term.”

Euro-area inflation probably slowed to 0.6 percent in March from 0.7 percent in February, according to a separate Bloomberg News survey. In Spain, consumer prices unexpectedly fell this month when compared with the previous year, the first decline since 2009.

While the ECB aims to keep euro-area inflation just under 2 percent, consumer-price gains in the currency bloc have remained below 1 percent since October. ECB President Mario Draghi has said the central bank expects inflation to gradually return to its goal as growth picks up over the next two years.

Euro-area economic confidence as measured by the European Commission rose to the highest level since 2011, after data today showed that the region’s recovery strengthened in the final quarter of 2013.

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