UPDATE: German state CPI data show price pressures remain weak

Consumer prices in five of the six German states in October show that inflationary pressures remain weak in Europe's largest country and most likely in the Eurozone. "The fight with the forces of deflation cannot be declared to be won just yet," said Neil Mellor, currency strategist at BNY Mellon's London office. Data released today show the inflation rate in North Rhine-Westphalia-- Germany's largest state-- rose just 0.1% m/m and was flat y/y. Bavaria, Germany's second largest state, also reported an inflation rate of 0.1% on the month and flat on the year. Three smaller states -- Saxony, Hesse and Brandenburg -- reported negative annual inflation rates, and weak or flat monthly rates. Baden Wuerttemberg is due to release its data at 14:00 GMT. Preliminary national inflation figures, released after every individual state has provided data, is seen flat m/m and slipping 0.1% y/y. Last month, national inflation dropped 0.4% m/m and 0.3% y/y. As in previous months, state statistics offices have cited a retreat in oil prices, which hit record highs in summer 2008, as the main reason for sticky annual inflation rates. The European Central Bank closely monitors any EZ inflation data to help it carry out its primary mandate of keeping inflation 'near but below 2%.' Germany's low inflation rates suggest the ECB will not raise its main interest rate or wind-up its covered bond scheme before early 2010. "EZ inflation could certainly linger for a more extended and damaging duration if the positive stimuli from economic policy is compromised in any way," said Mellon's Mellor.