German inflation appeared likely to again slow in August after a trio of west German states yesterday reported surprisingly weak growth in consumer prices so far this month. The downward trend in German inflation makes an interest rate increase there less likely, meaning that Irish interest rates will have to fall sharply over the coming months to reach German levels by the introduction of the euro next January.

German inflation has fallen for three months in a row to 0.9 per cent in July, the slowest rise in inflation since unification in 1991.

Experts said that trend should continue this month and into the months ahead, leading to low Europe-wide interest rates.

in Frankfurt. It should help the economy and keep interest rates down. Three German states, North Rhine-Westphalia, Bavaria and Baden-Wuerttemberg, yesterday reported that month-on-month inflation declined 0.1 per cent in August, with yearly growth rates ranging from 0.6 to 0.8 per cent.

A final state, Hesse, is expected to report consumer prices by today. Data will be used by the Federal Statistics Office to compile a preliminary west German consumer price index.