August 29, 2013 / 2:38 PM / 4 years ago

German inflation eases, job market robust in August

BERLIN (Reuters) - German inflation eased in August and the unemployment rate stayed near its lowest level since the country reunified more than two decades ago although slightly more people were out of work due in part to a summer lull.

A solid jobs market in Europe's largest economy combined with wage hikes and easing price pressures should help conservative Chancellor Angela Merkel, who is hoping to win a third term in a vote on September 22.

The figures also suggests German consumers will continue to prop up growth at home, compensating for weak foreign demand, and boost economies elsewhere in the euro zone that are struggling to recover from the bloc's debt crisis.

Moreover German inflation well below the European Central Bank's target for price rises of just below 2 percent poses no threat to expansive monetary policy.

"The news today confirmed that price pressures are at the moment relatively consistently low," said Heinrich Bayer at Postbank. "This is positive for the German economy as moderate inflation favours real growth in income and thereby an increase in consumption."

German consumer confidence remained close to its highest level in nearly six years, data showed earlier this week.

Berenberg Bank's Christian Schulz added that "low German inflation is good news for the ECB, as it keeps the hawks on the Governing Council at bay."

Data from the Statistics Office showed annual inflation decelerating to 1.5 in August from 1.9 percent in the previous month, undercutting the median forecast in a Reuters poll of 24 economists for a slowdown to 1.7 percent.

Regional data suggested a slide in energy prices drove the slowdown. At a federal level, consumer price inflation harmonised to compare with other European Union countries decelerated to 1.6 percent on an annual basis.

"Despite rising wages and low borrowing costs, there are no signs of a wage-price spiral in Germany," said Schulz.

"German inflation is likely to stay at the higher end of the range of euro zone inflation rates as the periphery restores its competitiveness. But a wide deviation from the ECB's overall 2 percent target looks unlikely."

ROBUST LABOUR MARKET

A bastion of strength in the early stages of the euro zone's debt crisis, the German economy only narrowly avoided recession at the start of the year as a worsening global outlook diminished appetite for its products and willingness to invest.

This was reflected in German engineering orders data released early on Thursday showing intake falling 3 percent on a 9 percent fall in foreign orders. The data nonetheless showed domestic orders up 10 percent.

Such solid domestic demand helped the German economy grow at its strongest rate in more than a year in the second quarter and business sentiment hit its highest level in 16 months in August, adding to evidence it is bouncing back from the brief slowdown.

Elsewhere in the euro zone on Thursday, French industrial morale rose to its highest level since late 2011 and Italian consumer and business morale gained more than expected.

German Labour Office data showed joblessness rose by some 7,000 to 2.943 million in seasonally adjusted terms in August, the first month-on-month increase since May.

The rise contrasted with expectations for a drop of 5,000, but analysts said firms would soon start showing greater inclination to hire as they focused more on the recent rebound in German economic growth than on remaining uncertainty stemming from the euro zone's debt crisis.

Rainer Sartoris of HSBC Trinkaus said: "The German economy is recovering. That will feed through to the labour market with delay. There's scope for a small autumn revival."

Labour Office chief Frank-Juergen Weise agreed: "Companies are hiring less because of the summer holiday. When the holidays are over in the three big federal states, it will get better again."

The non-adjusted number of people out of a job, a politically important figure in Germany, remained below 3 million for the fourth month in a row.

Additional reporting by Rene Wagner, Reinhard Becker and Sarah Marsh; Editing by John Stonestreet/Ruth Pitchford

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