By Maria Martinez
BERLIN (Reuters) -German inflation eased slightly more than expected in March, helped by a drop in energy prices, preliminary data from the federal statistics office showed on Tuesday.
Inflation in Europe's largest economy slackened in March to 2.3%, its lowest level since June 2021. German consumer prices, harmonised to compare with other European Union countries, had risen by 2.7% year-on-year in February.
"Even the Easter Bunny can’t stop German disinflation," said Carsten Brzeski, global head of macroeconomics at ING, explaining that the 'Easter bunny effect', the base effect stemming from the timing of Easter, was hardly visible this year.
He said prices for leisure, packaged holidays and hotels and restaurants rose less than expected month-on-month.
Looking ahead, headline inflation in Germany could drop to 2% as soon as next month, before rebounding somewhat in the months after, according to Brzeski.
Economists pay close attention to German inflation data, as the country publishes its figures a day before the release of euro zone inflation data, due out on Wednesday.
"The combined message from the data in Germany, France, Italy and Spain is that the euro zone headline harmonised inflation will undershoot the consensus this week significantly," said Claus Vistesen, chief euro zone economist at Pantheon Macroeconomics.
Euro zone inflation is expected at 2.6% in March, unchanged from the previous month, a Reuters poll of economists shows.
The European Central Bank has raised interest rates by the most in the euro's history to bring inflation down from double digits.
ECB chief Christine Lagarde said in March the euro zone's inflation rate was set to keep falling, while economic growth would start picking up during the year.
Euro zone consumers lowered their near-term inflation expectations in February but projections further out remain unchanged, a new survey by the ECB showed on Tuesday.
"They are now at the lowest level since the start of Russia's unjustified war against Ukraine in February 2022," the ECB said in a statement.
A growing number of ECB policymakers have supported rate cuts, with a June meeting shaping up as the most likely time for action, although there is also a meeting set for this month.
"At first glance, today's figures for German consumer prices in March suggest that monetary policy has to be eased soon," Commerzbank (ETR:CBKG)'s senior economist Ralph Solveen said.
However, a look at the details called for caution.
"Excluding the highly volatile prices of energy and food, inflation has barely slowed down," Solveen said.
Core inflation in Germany, which excludes volatile food and energy prices, was at 3.3% in March, down from 3.4% in February.
Energy prices in March 2024 were 2.7% lower than in the same month a year earlier. It was also the first month since February 2015 in which food prices fell below the level of the same month of the previous year.
Inflation is supported by a rising trend in services, whose prices are increasingly dominated by a sharp jump in wage costs.
"This supports our expectation that the core inflation rate will stabilise well above the ECB's target of 2% in the coming months," Solveen said.
"The 2% price target has almost been reached from a German perspective, but inflation concerns remain," said Alexander Krueger, chief economist at Hauck Aufhaeuser Lampe Privatbank.
He warned that over the next few months, the inflation rate is more likely to rise slightly, with high wage settlements and higher agricultural commodity prices as the main risks.