German inflation close to 5% in January, state data suggest

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January 31, 2022

BERLIN (Reuters) – German inflation is set to stay close to 5% in January, regional data from five states suggested on Monday, remaining well above the European Central Bank’s price stability target of 2% for the euro zone as a whole.

Preliminary data from North-Rhine Westphalia, Bavaria, Hesse, Brandenburg and Baden-Wuerttemberg showed annual consumer price inflation (CPI) in a range between 4.7% and 5.6% in January.

The pan-German inflation data for Europe’s largest economy is due at 1300 GMT on Monday.

A Reuters poll of analysts points to an overall annual CPI rate of 4.3% for January. The EU-harmonized inflation figure (HICP) is projected to come in at 4.7%. In December, the annual CPI rate was 5.3% and the HICP reading 5.7%.

Euro zone inflation hit 5% last month, the highest on record for the 19-country currency bloc, but the ECB expects it back under its 2% target in both 2023 and 2024, even without policy tightening, as one-off pressures ease.

ECB chief economist Philip Lane told a Lithuanian newspaper last week the central bank would tighten policy if inflation was seen holding above its target, but such a scenario appears less likely for now.

The ECB meets next on Thursday but no policy move is expected as the bank unveiled a complex package of measures in December.

Last Wednesday, the German Economy Ministry said the government expects consumer price inflation to rise further this year, contrary to earlier projections, which will likely lead to higher wage demands by labour unions.

The head of Germany’s IG Metall union said on Thursday that higher real wages would be a key goal in upcoming collective bargaining rounds in the iron and steel, as well as the metal and electrical, industries.

(Writing by Paul Carrel; Editing by Gareth Jones)