BERLIN, March 30 - Indicative March inflation readings released by four German states point to a material increase in consumer price growth, pushed in part by a sharp jump in energy costs following the U.S.-Israeli war on Iran.
In Germany's largest state by population, North-Rhine Westphalia, the year-on-year inflation rate rose to 2.7% in March, up from 1.8% in February. Similar upward moves appeared in Bavaria, Baden-Wuerttemberg and Lower Saxony, where the rates climbed to 2.8%, 2.5% and 2.6%, respectively. Those state-level readings were at least 2.5% in March and signal that the national harmonised inflation rate for Germany is likely to show an increase when the labour office publishes the official figure on Monday afternoon.
Economists polled by Reuters expect harmonised inflation in Europe’s largest economy to rise to 2.8% in March, up from 2.0% in February. The German state data arrive ahead of the euro zone inflation print due on Tuesday, for which economists in the same poll forecast a rise to 2.7% in March.
Policy makers at the European Central Bank are watching the pass-through of energy price movements closely. Officials are debating whether, and under what circumstances, they would need to raise interest rates to prevent the recent jump in energy costs from spreading into prices for other goods and services.
Financial markets currently price in three ECB interest-rate increases this year, with the first expected in April or June. That pricing is based on the view that central bankers may be inclined to move early after having faced criticism for misreading the inflation surge in 2021/22.
Context and implications
The state-level inflation upticks reflect heightened energy-related price pressure tied to the U.S.-Israeli war on Iran. Given their size and economic weight, the four states’ data make a national rise in Germany’s harmonised inflation likely for March. The timing of the national release on Monday and the euro zone report on Tuesday means markets and policy makers will receive closely timed signals on the inflation outlook for both Germany and the broader currency bloc.