German inflation back in positive territory

Inflation in Germany, Europe's biggest economy, was back in positive territory in February with consumer prices rising by 0.1 percent, official data showed on Friday.

The previous month, the consumer price index had fallen for the first time in five years, dropping by 0.4 percent as a result of lower energy prices.

According to the Harmonised Index of Consumer Prices (HICP) -- the yardstick used by the European Central Bank -- inflation in Germany remained in negative territory, slipping by 0.1 percent year-on-year in February, way under the ECB's annual inflation target of just below 2.0 percent.

In January, HICP had fallen by 0.5 percent.

The February data are still only preliminary, since they are based on consumer price statistics from only six out of Germany's 16 regional states.

Final data, based on all 16, will be published on March 12, the German federal statistics office Destatis said.

The data will offer some hope that the eurozone will be able to avoid a dangerous deflationary spiral of falling prices.

Last month, the ECB unveiled a massive trillion-euro bond purchase programme to ward off deflation and end stagnation in the eurozone economy.

Analysts predicted that inflation was set to trend gradually upwards during the course of the year.

"One reason for the uplift is the increase in energy prices in February. But even without energy prices the inflation rate should have increased as the minimum wage, which has been in force since January, is driving up prices of certain services such as taxi journeys and restaurant meals," said Commerzbank economist Marco Wagner.

"This trend will continue to boost inflation over the further course of the year."

Berenberg Bank economist Rob Wood was more sceptical.

"Eurozone inflation is likely to stay very weak in the first half of the year before the lower euro exchange rate return rates into modest positive territory. A return to the ECB's 2.0-percent target remains a distant prospect," he said.

ING DiBa economist Carsten Brzeski believed there was "clearly no risk of deflation for the German economy. Instead, price developments in the service sector could even be the first result of higher wages and the introduction of the minimum wage."

He predicted that German headline inflation would remain close to zero for one or two more months, but move higher in the second half of the year.

"Against the background of a strong labour market and recent wage increases, these low inflation rates should continue feeding private consumption," which is the main driver of German economic growth at the moment.