Saxony CPI

December: +1.2% m/m, 1.8% y/y
November: unch m/m, 1.5% y/y
—
Pan-German CPI

MNI median forecast: +0.9% m/m, +1.5% y/y
MNI forecast range: +0.3% to +1.2% m/m

November: +0.1% m/m, +1.5% y/y
—

FRANKFURT (MNI) – Consumer prices in the eastern German state of
Saxony rose 1.2% in December, lifting the annual inflation rate to +1.8%
from +1.5%, the state statistics office reported Wednesday.

The monthly result, the first from the six states expected to
release preliminary inflation figures Wednesday, is above the median
forecast of +0.9% for pan-German CPI in an MNI survey of analysts.

Upward pressure on monthly inflation came from lodging services
(+23.4%) and package holidays (+20.5%). This reflects demand for holiday
travel and the limited number of warm destinations this time of year.

In some components of the volatile energy and food sectors, there
were also fairly sharp increases. Heating oil rose 7.5% on the month,
motor fuels gained 4.5%, and seasonal foods jumped 5.4%.

Monthly prices increases in larger categories were more modest.
Food and alcoholic beverages gained 1.4% on the month. Food prices as a
whole were up 1.5%. Health care costs rose 0.1%. Clothing and shoes fell
0.5%.

In the annual comparison, the largest gains were in heating oil
(+28.9%), vegetables (+20.9%) and seasonal foods (+18.0%).

While costlier commodities are stoking inflation, domestic price
pressures were more subdued due to remaining slack in the economy. Core
inflation, as measured by CPI excluding energy and seasonal foods, was
up 0.9% on the month and only 0.7% higher on the year. Wages will begin
to accelerate after next year’s pay rounds, but the impact should not
become critical until the following year.

Thus inflationary pressures are expected to remain muted in the
Eurozone’s largest economy.

“There are no grounds for serious concerns about inflation, as the
general inflation rate is likely to remain below 2% in the coming year
and hence there will be no need for the European Central Bank to
intervene to stabilize prices,” consumer researcher GfK wrote last week.

German inflation will likely increase at a clip that is consistent
with price stability, the Bundesbank wrote earlier this month. It
forecast HICP to rise from 1.1% on average this year to 1.7% next year
before falling back to 1.6% in 2012. HICP inflation excluding energy
would accelerate to 1.1% in 2011 and 1.5% in 2012.

–Frankfurt bureau: +49-69-720142; email: frankfurt@marketnews.com

[TOPICS: M$G$$$,M$X$$$,MAGDS$,M$XDS$,MT$$$$]