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Inflation rate in Germany hits highest level since 2008

Published 30/12/2010

Inflation in Germany rose faster than expected this month to the highest level since October 2008. The news could be good for Ireland if costs in Europe's biggest economy rise while costs are falling in the Republic.

The German inflation rate, calculated using a harmonised European method, increased to 1.9% from 1.6% in November, according to the country's Federal Statistics Office.

News of higher-than-expected growth in Germany adds to the sense of an increasingly two-tier eurozone, with Germany and other core economies powering ahead while Ireland and the rest of the periphery flounder.

However, economist Austin Hughes of KBC Bank said the news could be good for Ireland.

"The reflex reaction of the European Central Bank (ECB) is probably to see this as a bad thing, but if German inflation outpaces inflation in Ireland we should benefit because I would expect to see a divergence in prices between the two," he said.

The widening divergence within the 16-nation Eurozone will make it harder for the ECB to determine a rate appropriate across the zone. Across Europe, inflation held steady at 1.9% in November, in line with the ECB's price-stability definition of just below 2%. The ECB has left its key interest rate at a record low of 1% since May 2009.

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