German inflation falls sharply to 1.5% in March

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Much softer than expected.

Germany’s annual inflation rate has tumbled sharply in March, falling back from 2.2 per cent to 1.5 per this month – a development that should ease pressure on the European Central Bank.

Economists had forecast consumer prices in Europe’s largest economy to rise by 1.9 per cent from 2012 highs this month, but regional figures out this morning suggested the March reading would come in lower than expected.

Inflation has been rising faster than anticipated in the eurozone at the start of the year on the back of climbing food and energy costs, emboldening hawks in the ECB about exiting its record stimulus measures after more than two years.

A breakdown of the inflation basked from stats office Destatis showed food price growth eased to 2.3 per cent from 4.4 per cent while energy climbs also softened to 5 per cent from 7.2 per cent.

Germany’s softer inflation has been coupled with a similar pull back in Spain, where price growth fell back to 2.1 per cent from 3 per cent in February.

“The 2016 Easter bunny clearly brought some late relief for the ECB”, said Carsten Brzeski, chief Germany economist at ING.

He thinks the ECB is “not likely to quickly change policies, clearly not before the French presidential elections. After the elections, its early-June or late-July meeting,the ECB could give its first hints at a 2018 tapering, referring to reduced deflationary risks.”

German government bond yields slipped on the release, falling 2 basis points on the day.

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