German Inflation Hits Six-Year High Even as Economy Falters

(Bloomberg) -- German inflation accelerated to the fastest pace since February 2012, even after economic growth probably ground to a temporary halt, presenting mixed signals for the European Central Bank as it prepares to rein in euro-zone stimulus.

Consumer prices rose an annual 2.4 percent in October, compared with 2.2 percent in September and matching the median estimate in a Bloomberg survey.

German Inflation Hits Six-Year High Even as Economy Falters

The buildup of price pressures in Europe’s largest economy helps justify the ECB’s plan to cap its bond-buying program in December, but it comes against the backdrop of slowing economic momentum in the country and across the region. Euro-area output expanded just 0.2 percent in the third quarter, the weakest in four years, with growth in Italy stalling and France’s expansion weaker than forecast.

So far central-bank officials have remained sanguine. The Bundesbank says it expects zero German growth for the third quarter, but only because of temporary factors. ECB President Mario Draghi said Thursday that while the euro area has lost momentum, there’s no downturn and domestic demand remains solid.

What Our Economists Say:
“The rise in German inflation in October is likely to be temporary. It was probably driven by a base effect that will be unwound next month. Additional wage gains will be required for a more permanent pick-up of underlying price increases.”

-- David Powell, Bloomberg Economics. Read our GERMANY REACT here

Euro-area inflation data will be published on Wednesday, with economists expecting a pick-up to 2.2 percent from 2.1 percent.

The Governing Council is due to hold a policy meeting on Dec. 13 to review its decision to stop asset purchases at the end of the year. It has always said that decision is dependent on incoming data.

Under a national measure, inflation in Germany stood at 2.5 percent in October, the highest level since 2008.

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