Lower German inflation signals trend for eurozone

German annual inflation eased in February as the strong euro helped to contain oil and other import prices, signalling that the rate is also likely to fall in the wider eurozone.
In the first national indication of prices in the 12-country bloc this month, preliminary data from the Federal Statistics Office on Wednesday showed German inflation slipped to 0.9 percent from 1.2 percent in January.
On a monthly basis the rate increased to 0.2 percent in February from 0.1 percent in January, a rise analysts attributed to increased German healthcare costs under government reforms.
"Overall we're seeing significant reductions in inflation in underlying terms. Without the health reforms the figure would be much lower," said Lehman Brothers economist Sandra Petcov.
"In dollar terms oil prices are still very high, but they're significantly lower in terms of the euro, which has helped to keep down inflation in Germany," she said.
Together with inflation data from Italian cities due on Thursday, the German figures provide a first snapshot of eurozone inflation trends in February.
The Federal Statistics Office said consumer prices harmonised to compare with other European Union countries rose 0.2 percent on the month and 0.9 percent on the year after a monthly gain of 0.1 percent and annual rise of 1.3 percent in January.
Germany accounts for a third of the eurozone consumer price index. HVB economist Julian von Landesberger said he saw euro zone inflation dipping to 1.8 percent year-on-year from 2.0 percent reported in January.
However, he did not expect the drop, which is expected to continue in March due to favourable base effects, to prompt the European Central Bank into cutting interest rates. The ECB aims to keep eurozone inflation just below two percent over the medium term.
Consumer price data from six German states used to calculate the preliminary inflation figure showed that annual declines in the price of heating oil of roughly 20 percent cancelled out cost hikes in healthcare of 18 to 19 percent due to reforms that took effect at the start of 2004.