Customers make a purchase at a store check out counter in Berlin, Germany. (Photographer: Krisztian Bocsi/Bloomberg)

German Inflation Unexpectedly Accelerates to Four-Month High

(Bloomberg) -- German inflation unexpectedly accelerated to a four-month high, suggesting the rate in the euro area will rise further above the European Central Bank’s goal.

Consumer prices rose an annual 2.2 percent in September, exceeding the median estimate in a Bloomberg survey and the 1.9 percent reached in August. Eurostat will release data for the 19-nation euro region on Friday, after reports from France and Spain.

The euro rose slightly after Thursday’s numbers and traded at $1.1706 at 2:15 p.m. Frankfurt time.

German Inflation Unexpectedly Accelerates to Four-Month High

Inflation in Germany has been slightly stronger than in the currency bloc in recent years, supported by a robust labor market and solid domestic growth. The latest pick-up -- boosted by rising energy costs -- is likely to add to discontent in Europe’s largest economy about continuously loose monetary policy and amplify calls for higher interest rates.

Under a national measure, inflation in Europe’s largest economy stood at 2.3 percent in September, the highest level in almost 7 years.

What our economists say
“The big picture is that cost pressure is firming, but headline inflation has been buoyed by energy costs and is likely to fall back in quarters to come.”
--Jamie Murray and David Powell, Bloomberg Economics. Read our GERMANY REACT here

Governing Council member Ewald Nowotny of Austria has already said the ECB should consider tightening policy sooner than originally planned. While the ECB expects to end asset purchases in December, officials have signaled borrowing costs won’t rise until after the summer of 2019.

“The inflation rate in Germany is now above the inflation goal of the ECB,” Clemens Fuest, president of the country’s Ifo institute, told Bloomberg. “If this trend is confirmed for the euro area as a whole, the ECB should announce that interest-rate increases can happen earlier than currently planned.”

Any demands for a faster exit from unconventional stimulus are likely to be countered by increasingly uncertain economic prospects. Germany slashed its growth forecasts on rising protectionism, and the World Trade Organization downgraded its view of global commerce.

The ECB acknowledged those concerns when it presented updated economic projections in September, even though it maintained risks to the growth outlook are still broadly balanced and confidence in inflation has improved. It aims to keep price growth just below 2 percent over the medium term.

Before the German numbers, euro-area inflation was forecast to accelerate to 2.1 percent. The core inflation rate, which excludes volatile components such as fuel, gas and food, probably rose to 1.1 percent.

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