German annual inflation slowed for a second straight month in November, likely emboldening the European Central Bank (ECB) to cut interest rates again in the coming months as the region's economy cools down.
Prices rose 2.4 percent on the year -- still above the ECB's target of just under 2 percent -- mostly due to household energy prices, the Federal Statistics Office said on Monday. That was in line with economists' forecast in a Reuters poll.
Prices slowed from a rate of 2.5 percent the previous month.
There is currently little inflation risk over the next 12 to 18 months as the poorer economic outlook dampens upward pressure on prices, said Ulrike Rondorf, an economist at Commerzbank.
Consumer prices were unchanged on the month in November, as they had been in the previous month, preliminary data showed, also in line with economists' expectations.
Consumer prices harmonised to compare with other European Union countries were unchanged month-on-month and gained 2.8 percent year-on-year.
The inflation rate looks set to continue falling in the months ahead and undershoot the critical 2 percent mark in spring, Rondorf said, adding the poor outlook for economic activity would mitigate inflation risks.
RATE CUT ON THE CARDS?
The ECB earlier this month unexpectedly cut its main interest rate by a quarter point to 1.25 percent, and a Reuters poll conducted after the rate move showed there is a 50-50 chance the ECB will cut rates again before the end of 2011.
The data gives a further boost to chances of a second rate cut of the ECB at next week's December meeting, said Christian Schulz, an economist at Berenberg Bank.
Although inflation remains above target, the ECB may soon have to turn its attention away from imminent overshooting of its inflation target to possible undershooting as the economy enters recession, he added.
For much of the year, the ECB has faced the dilemma of balancing monetary policy for struggling peripheral euro zone states and Germany's strong economy, which recovered swiftly from the 2008/09 financial crisis.
But Germany appears to have entered a mild recession in the final months of 2011, the Organisation for Economic Co-operation and Development (OECD) said on Monday, citing weaker world trade and a rapid loss of confidence due to the euro zone debt crisis.
Because of the problems affecting the peripheral countries, the ECB will for a long time pursue a monetary policy that is too expansionary for Germany, Rondorf said.
Germany's flash inflation estimate is based on data from six of the country's 16 states, which make up more than half the population. In five of the six states, annual inflation slowed in November.
Final German price data for October are due for release on December 9, the office said.
(Additional reporting by Alexandra Hudson and Maria Sheahan)