German inflation rises on VAT hike

Annual inflation in three German states quickened this month on the back of January 1st's three percentage point increase in …

Annual inflation in three German states quickened this month on the back of January 1st's three percentage point increase in sales tax.

Annual inflation accelerated by seven tenths of a point in Hesse, half a point in Saxony and a tenth of a point in Brandenburg, their statistics offices said.

The states are the first of six to publish data used by the Federal Statistics Office to calculate a preliminary estimate for Germany.

However, the data suggested only part of the increase in VAT to 19 per cent had been passed through to consumers at the start of the year due to strong competition and retailers' fears about alienating shoppers.

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Gernot Griebling, an economist at LBBW, said one reason the VAT hike had not had such an impact in January could be that prices had already been put up at the end of last year.

German price data provide the first snapshot of inflation trends across the wider euro region.