markets

German Inflation Jumps in March as ECB Debates Stimulus Path

  • Annual rate rose to 1.5 percent in March, below estimate
  • ECB’s Governing Council holds next policy meeting on April 26

German inflation jumped in March, underpinning European Central Bank projections that price growth across the bloc will eventually accelerate.

The annual rate rose to 1.5 percent in the region’s largest economy, according to data from the Federal Statistics Office. While that’s the highest level since the end of last year, the reading remained below economists’ estimates. Prices increased 0.4 percent on the month.

The data follow an earlier report showing German unemployment falling to a new record low, and the improvement still bodes well for the euro area, where inflation is also expected to pick up from the current 1.1 percent. ECB officials say the rate in recent months has been suppressed by statistical distortions, and that it’ll hover around 1.5 percent for the rest of the year.

Read more: German Joblessness Hits Record Low as Firms Face Bottlenecks

According to Commerzbank economist Christoph Weil, policy makers may even be in for a rare upside surprise. He predicts inflation will break through 2 percent in the summer on more expensive energy. While inflation in goods and services prices would remain largely unchanged, that could still impact ECB discussions about scaling back monetary stimulus.

Bundesbank President Jens Weidmann reiterated his call this week for ending asset purchases “soon,” while also arguing that market expectations for the first interest-rate increase around the middle of next year are “probably not entirely unrealistic.”

His colleague Klaas Knot, head of the Dutch central bank, echoed those remarks in Amsterdam on Thursday, saying the “top priority is to normalize monetary policy.”

Read more: ECB’s Knot Urges QE End to Help Wean World Economy Off Stimulus

Inflation also accelerated in Spain this month, albeit less than forecast. France and Italy will report data on Friday, with Eurostat numbers for the whole bloc available on April 4.

— With assistance by Andre Tartar, and Kristian Siedenburg

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