November 28, 2017 / 11:41 AM / a year ago

Soft German regional inflation backs up ECB's wary approach

BERLIN (Reuters) - Inflation in five German regions weakened in October, data showed on Monday, lending support to the European Central Bank’s decision to start reducing monetary stimulus for the euro zone only slowly.

The ECB last week said it would cut its bond purchases in half from January, but extended the programme until the end of September, promised years of stimulus and left the door open to backtracking, citing muted price pressures.

This careful approach is opposed by Bundesbank chief Jens Weidmann who before the ECB policy meeting last week demanded a quick and consistent withdrawal of monetary support.

ECB chief Mario Draghi said on Thursday the central bank’s decisions were not unanimous and that there was a large majority on certain but not all policy measures approved by the ECB governing council, of which Weidmann is a member.

Data published in Germany showed that annual consumer price inflation in the states of Saxony, Bavaria, Hesse, North Rhine-Westphalia, and Baden-Wuerttemberg slowed in October.

Prices fell on the month in three of the five states. In four regions, annual inflation ranged between 1.5 and 1.6 percent, below the ECB’s target of just below 2 percent. In the fifth region, Saxony, the reading was highest at 1.8 percent.

The annual figures for the five states had ranged from 1.8 percent to 2.1 percent in September.

A Reuters poll conducted before the release of the regional data suggested that pan-German EU-harmonised inflation slowed to 1.7 percent in October from 1.8 percent in September.

Preliminary data for the whole euro zone is due on Tuesday and should show an unchanged value of 1.5 percent in October, according to a Reuters poll.

The German economy grew by 0.7 percent on the quarter between January and March and by 0.6 percent in the second quarter, driven by household and state spending as consumers and authorities reap the benefits of record-low borrowing costs and a low unemployment rate.

Spanish data showed earlier on Monday that annual consumer price inflation inched down to 1.7 percent on the year in October, below September’s reading of 1.8 percent.

Reporting by Joseph Nasr; Editing by Alison Williams

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