Bavaria CPI

September: -0.2% m/m, +2.3% y/y
August: +0.4% m/m, +2.5% y/y
—
Pan-German CPI

MNI median forecast: -0.1% m/m, +1.9% y/y
MNI forecast range: -0.2% to +0.2% m/m

August: +0.4% m/m, +2.1% y/y
—

BERLIN (MNI) – Consumer prices in the western German state of
Bavaria fell 0.2% in September, dampening the annual inflation rate to
+2.3% from +2.5%, the state statistics office said Wednesday.

The monthly result is below the median forecast of -0.1% for
pan-German CPI in a MNI survey of analysts.

After the end of the holiday period, prices for packaged holiday
tours fell 8.3% on the month, while hotel and restaurant services were
down 2.7%, including a 10.3% plunge in hotels.

Food prices decreased 1.2%, with seasonal produce down 5.6%.

Following summer clothing sales, prices for clothing and shoes rose
4.1% on the month.

On the energy side, motor fuel was 2.4% more expensive on the
month, while the 0.2% rise in heating oil pushed up overall household
energy prices up 0.1%.

Annual inflation was again marked by rising energy prices, with
household energy up 5.3% – including a 9.1% rise in heating oil – and
motor fuel jumping 9.0%.

Food prices were 2.5% higher than a year ago, with seasonal produce
up 4.3%. Prices for clothing and shoes are up 2.2% on the year.

Core inflation, which excludes heating oil and motor fuel, was down
0.3% on the month, lowering the annual core inflation rate to 1.9%.

The Finance Ministry predicted last week that inflation in Germany
will likely moderate over the coming months due to sinking producer
price pressures resulting from slowing global economic growth.

Some analysts, however, expect inflation to pick up over the medium
term given that monetary policy in the Eurozone is too expansionary for
Germany. With labour costs already up 1.5% in 2Q and further rises
expected, firms may try to raise prices to preserve profit margins.

The economic panel of the German Banking Association (BDB),
consisting of the chief economists of the main private banks in Germany,
last week forecast inflation of 2.0% this year and 1.9% next year.

Due to the difficult economic situation and the modest outlook for
the Eurozone, the panel expects the ECB to cut rates this year again by
another 25 basis points to 0.5%.

While stronger wage growth could lead to inflation risks down the
road, Pier Carlo Padoan, chief economist with the Organisation for
Economic Cooperation and Development, argued recently that Germany
should consider raising its inflation tolerance to help debtor Eurozone
members better adjust.

By accepting higher wage inflation, creditor countries such as
Germany would provide a boost to debtor countries via increased
consumption, while lower wages would allow the Eurozone’s debtor nations
to be more competitive, Padoan said.

Yet, German Chancellor Angela Merkel on Tuesday rejected such
demands, calling on debtor nations instead to bring down their unit
labor costs to become more competitive.

For detailed information see data table on MNI MainWire.

–Berlin bureau: +49-30-22 62 05 80; email: twidder@marketnews.com

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