Consumer price inflation in Germany probably accelerated in March, raising the prospect of euro zone price pressures hitting a new record and dampening hopes for any European Central Bank interest rate cuts soon.

Boosted by surging oil costs, prices in the German states of Hesse, Brandenburg and Saxony rose by between 0.4 and 0.6 per cent month-on-month – a bigger increase than had been forecast for Germany this month, official data showed on Friday.

 

Data from the three German states provided some of the first insights into trends in the 15-nation euro zone, where inflation accelerated to a record 3.3 per cent in February – far above the European Central Bank's target of just below 2 per cent.

 

Other data on Friday showed consumer price inflation in Belgium, the first euro zone country to report its national figure, hit its highest annual rate since 1985 in March at 4.39 per cent year-on-year.

 

Karsten Junius, an economist at DekaBank in Frankfurt, said the German state data suggested annual inflation in Germany would be higher this year than last year – despite the fact prices were boosted by a three percentage point rise in sales tax in 2007.

 

"For the euro zone, we are looking at a record inflation rate for March," Junius said. "In this climate, the ECB should not send out any signals for an interest rate cut."

 

The ECB has kept its main lending rate at 4.0 per cent even as monetary policymakers in the United States and Britain have cut official borrowing costs to try and restore calm to rattled markets.

 

In a speech to be delivered in Luxembourg on Friday, ECB Governing Council Member Axel Weber said prices pressures in the euro zone were "alarmingly high" and he saw upside risks to price stability in the region over the mid-term.

 

               

FORECASTS

 

Data for the German states showed annual inflation accelerated by between 0.2 and 0.4 percentage points. A Reuters poll forecast the EU inflation measure (HICP) for Germany would tick up by a tenth of a point to 3.0 per cent in March.

 

A preliminary Reuters poll of economists forecast that euro area inflation would hold steady at 3.3 per cent this month. A flash estimate of euro zone inflation is due on Monday.

 

Germany, Europe's biggest economy, accounts for nearly a third of the euro zone price index. Three states which make up the lion's share of the German price index are due to report their data later on Friday. A preliminary German inflation estimate will follow.

 

Prices in Germany, Europe's largest economy, were expected to rise by 0.3 per cent on the month in March, the poll showed.

 

A spokesman for the statistics office in Hesse, the most populous state so far to report, said that annual inflation – at 3.4 per cent in March – was close to a 15-year high. (Reuters)