BERLIN (Reuters) – Inflation is expected to ease significantly in Germany in March due to lower energy prices, according to preliminary data from six key states in Europe’s biggest economy.

In the regions of Brandenburg and Baden-Württemberg, inflation fell to 7.8% year on year. It slowed to 8.3% in Saxony, 7.2% in Bavaria, 7.1% in Hesse and 6.9% in North Rhine-Westphalia.

In February, inflation in these six Länder was between 8.3% and 9.2%.

National level data will be released at 12:00 GMT.

Inflation in Germany and the euro zone is no longer the result of a purely supply-side shock, but of a demand-side problem, explained ING economists Carsten Brzeski and Franziska Biehl.

“It’s not just rising energy and commodity prices that are being passed on to consumers, it’s also rising profit margins in some sectors that are contributing to inflationary pressures,” they wrote. in a note.

Economists note that wage demands are growing in an extremely tight labor market. Negotiations on the matter in the German public sector, where a salary increase of almost 6% per year has been proposed for 2023 and 2024, have not yet resulted in any agreement.

“The unions are in a strong position, which is why we continue to believe that the final agreement will be above this threshold,” said Christian Schulz, economist at Citi.

“This will lead to a direct rise in inflation, as local authorities will have to raise refuse management fees and health insurance funds will raise contribution rates to pass on higher costs,” he added. .

If headline inflation slows, core inflation, which excludes energy and food, is likely to remain elevated, ING economists noted.

“The European Central Bank will continue to raise interest rates, at least until the summer, before entering an extended pause period,” they added.

(Report Maria Martinez; Claude Chendjou, edited by Blandine Hénault)

Copyright © 2023 Thomson Reuters