Food prices push German inflation above ECB ceiling

BERLIN (Reuters): Germany’s annual inflation rate rose for the first time in fourth months in December on increases in food and package holiday prices, breaching the European Central Bank’s target threshold for the broader euro zone of 2%.

Compared to the prior year period, prices increased 2.1% in the final month of 2012, preliminary data from the Federal Statistics Office showed. On the month, consumer prices rose 0.9%.

Economists surveyed by Reuters had been expecting more modest rises of 1.9% year-on-year and 0.7% on a monthly basis.

“Food prices, hotels and package holidays were the key culprits for an inflation increase in December in Germany,” said Christian Schulz, senior economist at Berenberg.

“The data are unlikely to affect the ECB’s interest rate decision next week much, although it may add a little bit more weight to the arguments of those on the Governing Council opposing further monetary stimulus,” he added. Eurozone inflation in December is forecast at 2.1% on the year, a slight fall from November’s 2.2%.

Germany’s inflation rate remained above the ECB’s broader euro zone target of close to but below 2.0% for much of 2012 as its economy outperformed European peers, fueling robust wage rises. The government and the country’s central bank have both hinted they would tolerate higher prices as long as euro-wide inflation remains under control. That could help ailing euro zone countries boost their competitiveness. A Reuters poll conducted late last year showed that economists were evenly divided about whether the ECB hold its main refinancing rate steady at a record low of 0.75% through the first quarter of the year or cut the rate to 0.5%.