German Inflation Slowed in March as Energy Rose at Weaker

Inflation in Germany, Europe’s largest economy, slowed in March as energy prices increased at a weaker pace than a year ago.

Inflation (GRCP2HYY), calculated using a harmonized European Union method, eased to 2.3 percent from 2.5 percent in February, the Federal Statistics Office in Wiesbaden said today, confirming a March 28 estimate. Prices rose 0.4 percent in the month.

The European Central Bank last week kept its benchmark interest rate at a record low of 1 percent as it tries to balance the threat of inflation in Germany against recessions in half of the region’s member countries. With German workers winning some of the biggest pay increases in 20 years and tensions in the Middle East driving up the cost of oil, policy makers will “pay particular attention” to price developments, ECB President Mario Draghi said.

“While wage policies won’t have an impact on the inflation rates of today and tomorrow, they’re an indication that we will have to get used to significantly higher inflation rates in the medium term,” said Joerg Lueschow, head of economics at WestLB in Dusseldorf. “High oil prices will prevent prices from coming down significantly in the short term amid weaker economic growth.”

Energy prices rose 6.7 percent in March from a year earlier, the statistics office said. If energy prices were stripped out of the index, Germany’s non-harmonized inflation rate would have been 1.6 percent in March instead of 2.1 percent, it said.

Euro-area inflation slowed to 2.6 percent in March from 2.7 percent in February. The ECB predicts the rate will remain above 2 percent for the rest of the year, even as the region’s economy contracts amid the sovereign debt crisis. It aims to keep inflation just below 2 percent.