State data points to German annual inflation slowing in February

(Reuters) - Germany's inflation rate probably eased on the year in February and remained below the European Central Bank's target of two percent, but likely accelerated on a monthly basis, data from five federal states suggested on Thursday.

In the five of the six states used to calculate the pan-German figure for which data was already available, the pace of annual inflation was below 2 percent. The European Central Bank (ECB) aims to keep inflation close to but below 2.0 percent in the euro zone as a whole.

Monthly inflation accelerated in the five states, largely due to an increase in the cost of package holidays.

In North Rhine-Westphalia (NRW), Germany's most populous state and a bellwether for the national data, inflation slowed to 1.6 percent on the year in February and accelerated to 0.6 percent on the month.

The preliminary German inflation figure is due out later on Thursday and economists polled by Reuters see it easing to 1.6 percent in February from 1.7 percent in January.

The consumer price index is expected to rise by 0.7 percent on the month in February after falling by 0.5 percent in the prior month.

Thilo Heidrich, economist at Postbank, said the data from the states pointed to prices rising by 0.7 percent month-on-month and holding steady at 1.7 percent on an annual basis.

"That would mean we have fairly moderate inflation," he said. "That would benefit the ECB because it will not be forced to raise interest rates in the foreseeable future as inflation is in the range that it is targeting."

Germany's inflation rate remained above the ECB's target for much of 2012 as its economy outperformed European peers, fuelling robust wage rises.

The government and the country's central bank have both hinted they would tolerate higher prices as long as euro-wide inflation remains under control. That could help ailing euro zone countries boost their competitiveness.

(Reporting by Michelle Martin; Editing by Toby Chopra)