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UPDATE 1-German state data flag a sharp inflation slowdown

Published 11/26/2008, 06:30 AM
Updated 11/26/2008, 06:32 AM
ATTU
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(Adds Bavaria data, economist comment)

By Paul Carrel

BERLIN, Nov 26 (Reuters) - German inflation likely slowed markedly in November as fuel costs fell, easing for a fourth month running and pointing to easing price pressures in the broader euro zone, state data showed on Wednesday.

Annual inflation in North Rhine-Westphalia (NRW), Germany's most populous state, slowed to 1.1 percent from 2.3 percent in October, state statistics office data showed. Inflation in other German states also eased by a full percentage point or more.

"This is good news," said Postbank economist Marco Bargel.

"Easing inflation is the best economic stimulus programme at the moment. It supports purchasing power," he added. "The weakness in exports could at least partly be compensated by stronger domestic demand."

Fading exports dragged Germany into its first recession in five years in the third quarter, official figures released on Tuesday showed.

Data from German states often provide the first insight into inflation trends across the euro zone. NRW accounts for nearly a quarter of Germany's price index, which itself makes up close to 30 percent of the overall gauge for the single currency area.

Slower German inflation could encourage the European Central Bank to loosen borrowing costs further to counter the threat of a lasting economic downturn. The ECB next meets on Dec. 4.

In comments published on Wednesday, ECB Governing Council member Ewald Nowotny told Japan's Nikkei newspaper that receding worries about inflation have made room for another ECB rate cut.

The state data showed consumer price inflation (CPI) in Bavaria slowed to 1.5 percent in November from 2.7 percent in October and in Hesse, it eased to 1.0 percent from 2.0 percent.

In Brandenburg, inflation eased to 1.2 percent from 2.2 percent and in Saxony it slowed to 1.7 percent from 2.7 percent.

A Reuters poll forecast Germany's national gauge of consumer prices (CPI), due to be published later on Wednesday, would dip by 0.3 percent on the month, with annual inflation expected to slow to 1.6 percent from 2.4 percent in October.

The EU-harmonised price index (HICP) was seen falling by 0.3 percent on the month. Prices were tipped to rise 1.7 percent on the year -- down from 2.5 percent in the previous month.

Another Reuters poll pointed to euro zone inflation, due on Friday, slowing to 2.4 percent in November from 3.2 percent in October.

(Additional reporting by Noah Barkin, Kerstin Gehmlich and Erik Kirschbaum)

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