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Inflation fell in Germany and Spain.

Inflation index
 Infla­tion fell rap­idly in two of Europe’s largest eco­nom­ies in March after a sharp drop in energy costs des­pite rises in the price of other goods and ser­vices.

Ger­man con­sumer prices rose 7.8 per cent year-on-year on a har­mon­ised basis, down from the pre­vi­ous month’s rate of 9.3 per cent but higher than the 7.5 per cent fore­cast by eco­nom­ists polled by Reu­ters.

The fig­ures came hours after Spain’s annual infla­tion rate almost halved to 3.1 per cent for March, from 6 per cent the pre­vi­ous month.

Euro area gov­ern­ment bonds sold off after the coun­try’s infla­tion fig­ures were pub­lished. Yields on Ger­man two-year debt rose 0.13 per­cent­age points to 2.8 per cent as investors bet that bor­row­ing costs in the euro­zone would rise fur­ther.

The ECB has raised interest rates swiftly in response to a surge in infla­tion over the past year, rais­ing its bench­mark deposit rate from minus 0.5 per cent the last sum­mer to 3 per cent. However, some mem­bers of the gov­ern­ing coun­cil have called for a more cau­tious approach after the bank raised interest rates by half a per­cent­age point this month.

The tur­moil in the bank­ing sec­tor has also opened up the pro­spect of a poten­tial credit crunch that could slam the brakes on both infla­tion and growth. However, some coun­cil mem­bers argue that the ECB needs to dis­count the sharp swings in energy costs and focus on under­ly­ing price pres­sures. Isa­bel Schna­bel, the most hawk­ish mem­ber of the ECB exec­ut­ive board, told an event in Wash­ing­ton late on Wed­nes­day that core infla­tion had proved more sticky than expec­ted and this «causes some head­aches for cent­ral bankers».

By con­trast, Ger­many’s use of longer-term con­tracts has made whole­sale price falls slower to fil­ter through.

Still, Ger­man energy infla­tion fell rap­idly from 19.1 per cent in Feb­ru­ary to 3.5 per cent in March, accord­ing to Des­tatis, the fed­eral stat­ist­ical office. Ber­lin’s par­tial cap on house­hold gas and elec­tri­city bills also con­trib­uted to the decline, it added.

Food infla­tion accel­er­ated slightly to 22.3 per cent from 21.8 per cent in the year to Feb­ru­ary.

www.sba.tax

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