German, Spanish inflation remain above ECB target in July

By Michael Nienaber and Paul Day

BERLIN/MADRID (Reuters) - German and Spanish inflation remained slightly above the European Central Bank's price stability target in July, preliminary data showed on Monday, supporting the ECB's cautious approach of winding down its monetary stimulus only gradually.

With price pressures building in the euro zone, the ECB plans to wrap up its lavish bond purchases by the end of the year. But it also said last week that interest rates would remain at record lows through the summer of 2019.

German consumer price inflation, harmonized to make it comparable with data from other European Union countries, remained at 2.1 percent year-on-year, the Federal Statistics Office said. This was in line with a Reuters poll of analysts and above the ECB target of close to but below 2 percent.

On the month, EU-harmonized prices were up 0.4 percent, the preliminary numbers showed. The price increase was mainly driven by higher energy costs while food inflation slowed compared to the previous month, a breakdown of the figures showed.

The statistics office did not provide a flash figure for core inflation but Commerzbank economist Ralph Solveen said that German inflation excluding the highly volatile energy and food components remained unchanged at 1.4 percent.

Joerg Zeuner, chief economist at KfW bank, said that the inflation rate in Europe's biggest economy would probably ease in the coming months due to falling energy prices.

"After all, crude oil prices, as their recent main driver, are currently tending to weaken again," he added.

In Spain, Europe's fourth-biggest economy, EU-harmonized consumer price inflation remained unchanged at 2.3 percent year-on-year in July, flash data from the National Statistics Institute in Madrid showed on Monday.

The euro zone will publish preliminary July inflation data on Tuesday, with the annual rate expected to remain unchanged at 2.0 percent, according to a Reuters poll. The ECB's target is close to but just under 2.0 percent.

(Reporting by Michael Nienaber; Editing by Paul Carrel and Angus MacSwan)

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