German inflation hits two-year high in January

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German inflation hit 1.9 percent in January, its highest level in more than two years, official data showed Thursday.

Inflation in Germany, the Europe's biggest economy, stood at an annualised 1.7 percent in December and the latest reading was the highest since October 2008, when prices gained 2.4 percent.

As in previous months, the cost of energy, fruits and vegetables were primarily responsible for the latest increase, the Destatis statistics office said.

On a monthly basis however, consumer prices declined 0.5 percent, a typical development after the Christmas season.

The provisional figures were calculated from data provided by six of Germany's 16 states, or Laender.

In three, North Rhine-Westphalia, Baden-Wuerttemberg and Bavaria, inflation topped 2.0 percent, the European Central Bank target.

"All in all, current conditions let us expect a clear upward trend in the core rate throughout this year," UniCredit economist Alexander Koch said.

"But, barring a renewed jump in commodity prices, we do not expect a further strong acceleration of the headline rate. We forecast inflation to average 2.2 percent in 2011," he added.

ING senior economist Carsten Brzeski said Germany would probably be the first eurozone country to see so-called second round inflation effects from increases in energy and food prices.

"Strong economic growth, falling unemployment, employment growth and wage moderation over the last ten years should fuel wage demands," he said.

The main German labor union IG Metall is seeking a six percent wage increase for some 100,000 Volkswagen workers in the current round of pay talks.

- Dow Jones Newswires contributed to this story -

© 2011 AFP

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