August 29, 2013 / 2:36 PM / 4 years ago

UPDATE 2-German inflation eases, job market robust in August

* Easing German price pressures in tune with low ECB rates
    * Joblessness rises slightly due to summer lull
    * Yet unemployment rate still near post-reunification low
    * Data helpful for Merkel in run-up to Sept. 22 vote

    By Annika Breidthardt and Sarah Marsh
    BERLIN, Aug 29 (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 Sept. 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."
    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
    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.

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