BERLIN, March 30 (Reuters) - Fueled by energy price shocks from the U.S.-Israeli war on Iran, inflation rose to at least 2.5% in four indicative German states in March, signalling that the national
German state inflation points to national uptick as Iran war heats up
Rising Inflation Trends and Economic Impacts in Germany
BERLIN, March 30 (Reuters) - Inflation rose to at least 2.5% in four German states in March, driven by energy price shocks from the U.S.-Israeli war on Iran, signalling that the national inflation rate is also likely to show an increase in data due later on Monday.
State-by-State Inflation Increases
In Germany's most populous state of North-Rhine Westphalia, the year-on-year inflation rate jumped to 2.7% in March from 1.8% in February.
That upward trend was also reflected in the states of Bavaria, Baden-Wuerttemberg and Lower Saxony, where the inflation rate rose to 2.8%, 2.5% and 2.6%, respectively.
National Inflation Expectations
Economists polled by Reuters expect harmonised inflation in Germany to rise to 2.8% in March, from 2.0% last month. The country's statistics office is due to publish the data later on Monday.
Expert Insights on Inflation Drivers
Energy Price Shocks and Broader Effects
Holger Schmieding, chief economist at Berenberg Bank, said that though increases are currently driven by energy price shocks, it is only a matter of time until the war in Iran leads to price hikes across the board.
Potential Impact on Food and Transport Costs
"Food prices may rise over time due to a shortage of fertiliser, and higher transport costs will have an impact on many sectors," Schmieding said in a statement, adding that inflation could surpass 3% if the conflict drags on.
Business and Market Reactions
Company Price Expectations
The Ifo institute released a survey on Monday showing that German companies expect to raise prices significantly as a result of the war. Its price expectations index rose to 25.3 points in March from 20.3 in February.
"Higher production and transport costs will also push up the prices of goods and services," said Ifo's Klaus Wohlrabe.
Euro Zone and ECB Policy Outlook
The German data comes ahead of the euro zone inflation release on Tuesday. Inflation in the currency bloc is expected to rise to 2.7% in March, according to economists polled by Reuters.
The U.S.-Israeli war on Iran has pushed energy prices sharply higher, and ECB policymakers are now debating whether and under what circumstances they would need to raise interest rates to prevent this increase from seeping into the price of other goods and services.
Financial Market Expectations
Financial markets now expect three interest rate hikes this year from the ECB, with the first coming in April or June, on the premise that policymakers will be keen to move early after being criticised for misjudging the 2021/22 inflation surge.
(Reporting by Miranda Murray and Rene Wagner, writing by Friederike Heine, editing by Kirsti Knolle and Jane Merriman)
