German inflation slows in March, dropping further below ECB goal

March 28, 2019

BERLIN (Reuters) – German inflation remained below the European Central Bank’s target level for a fourth month running in March, data showed on Thursday, showing price pressures in Europe’s biggest economy are still moderate despite ultra-loose monetary policy.

German consumer prices, harmonized to make them comparable with inflation data from other European Union countries, rose by 1.5 percent year-on-year after an increase of 1.7 in the previous month, the Federal Statistics Office said.

The reading, which undershot a forecast of 1.6 percent, was driven by weaker cost pressures for food and services.

The ECB targets inflation of close to but below 2 percent for the euro zone as a whole.

On the month, EU-harmonized prices rose by 0.6 percent, the preliminary numbers showed. This compared with market expectations for an increase of 0.7 percent.

The European Central Bank reversed course earlier this month and put off plans to “normalize” policy, instead providing banks with even more liquidity and delaying a rate increase until next year.

Carsten Brzeski, economist at ING, said increased price transparency, competition and mobility in the services sector may break the traditional relationship between wage growth and higher prices, suppressing inflation for some time yet.

“Unfortunately, the German experience casts doubts on the ECB’s view that the pass-through of higher wages on inflation has only been delayed and not derailed,” Brzeski said.

(Reporting by Paul Carrel; Editing by Tassilo Hummel and Michelle Martin)

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