(Adds economist comment paras 10-11)
By Brian Rohan
BERLIN, March 27 (Reuters) - German annual inflation slowed sharply in March to its lowest level in nearly a decade, pointing to tamer prices in the broader euro zone which should give the European Central Bank room to cut rates.
Figures from the Federal Statistics Office released on Friday showed annual consumer price inflation (CPI) eased to 0.5 percent -- its weakest since July 1999 and below the 0.8 percent expected in a Reuters poll of economists made last week.
The lower-than-expected figure puts a dampener on any immediate worries of rising inflation in the 16-nation euro zone, backing up expectations of an interest rate cut next week.
"There's nothing in these figures that implies that inflation is more fierce than expected. So we still expect the ECB to cut interest rates by 50 basis points," said Dirk Schumacher from Goldman Sachs.
The ECB has cut rates at a record pace in recent months to an all-time low of 1.5 percent, and analysts expect it to cut them again to 1 percent at its next meeting on April 2.
Economists have forecast that an upcoming measure of euro zone inflation -- the flash reading released on March 31 -- will be 0.8 percent, but they may revise down their expectations after the German data.
ENERGY SHAPING INFLATION
Falling energy prices were largely responsible for the fall, the statistics office said, with fuel prices tumbling from between 17.5 and 19.2 percent on a yearly basis in six German states used to calculate the national figure.
"Energy prices should continue to shape the inflation rate in the coming months," said Commerzbank economist Simon Junker, adding: "We will also see negative rates. The low-point will be reached in July."
Should other European inflation data be similar to March's figures from the German states, it would add weight to concern among central bankers over the risk of falling prices despite very low interest rates.
"Deflationary trends are emerging... Risks to price stability do now clearly come from the downside," said economist Carsten Brzeski at ING Financial Markets.
"For the time being, even several months of negative inflation, mainly caused by negative base effects, cannot be considered deflationary. Nevertheless, the ECB will have to scotch any deflationary signs at an early stage," he added.
An EU-harmonised price index (HICP) issued alongside the national data showed German prices fell by 0.2 percent on the month, rising 0.4 percent on the year compared with an annual gain of 0.7 percent in February.
HICP was expected to show a rise of 0.3 percent on the month, with inflation easing to 0.7 percent on the year. (Additional reporting by Kerstin Gehmlich and Madeline Chambers, editing by Noah Barkin/Andy Bruce/Victoria Main)