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German inflation hits two-year high in October

German inflation has picked up speed again to reach its highest level since October 2014, suggesting the European Central Bank's unprecedented stimulus measures may be delivering results, at least in Germany.

Compared with the same month a year ago, German consumer prices rose by 0.8 percent in October, according to preliminary figures released by the country's statistics office Destatis on Friday.

The rise in monthly inflation follows a similarly strong gain of 0.7 percent in September - a 16-month high - and 0.4 percent in August. Nevertheless, the increase remained way below the target of the European Central Bank which considers an inflation rate of close to two percent as healthy for economic development.

"For an economy that is currently operating at full employment and with a positive output gap, inflation rates at around one percent are still extremely moderate," said analyst Carsten Brzeski at ING Diba bank.

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Energy main driver

Within the consumer price basket, prices for rental housing rose most steeply, climbing 1.4 percent over the year. Food prices remained largely unchanged.

According to the data, energy prices were the main drivers of German inflation as they have ended their falls in recent months, climbing to almost the same levels as in October 2015.

The inflation figure in Europe's biggest economy may be welcome news for ECB President Mario Draghi, who has tried for years to fight falling prices - also known as deflation - with ultra-loose monetary policy, including a massive asset-buying program to the tune of 80 billion euros ($87 billion) a month and historically low interest rates.

However, low inflation will remain a headache for Draghi because Germany seems to be an exception, with prices increases in the entire eurozone remaining subdued amid slow growth and high unemployment. In September, inflation for the euro currency area stood at just 0.4 percent.

Against this background, analysts don't expect the ECB to taper off its stimulus measures any time soon. "With inflation pressures still very weak, we suspect that it will still extend its asset purchases by six months at the current pace in December," said Capital Economics analyst Jennifer McKeown.

uhe/jd (Reuters, AFP, dpa)

 

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