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German inflation set to remain low, state data suggests

BERLIN (Reuters) - Annual inflation in Germany is likely to remain low in February but it looks set to be higher than in January, when prices fell for the first time since 2009, data from some federal states suggested on Friday.

Data from three federal states showed consumer prices rising on an annual basis while they were unchanged on the year in two states, including North Rhine-Westphalia (NRW), Germany's most populous state and a bellwether for the national rate.

A Reuters poll conducted before the state data was published showed economists expect consumer prices to fall by 0.4 percent on an annual basis when harmonised to compare with other European countries (HICP) -- the European Central Bank's preferred measure -- and to slip by 0.2 percent on the national measure.

After exhausting almost every other policy tool, the ECB announced last month that it would start buying 60 billion euros worth of mostly government bonds each month to prevent deflation from taking hold across the euro zone.

Jennifer McKeown, senior European economist at Capital Economics, said the HICP reading in Germany, the bloc's largest economy, would likely push back into positive territory, with a reading of around 0.1 percent after a 0.5 percent drop last month.

"It's clearly going to be stronger than the consensus forecast ... I don't think the outcome is all that surprising given the increase in the oil price over the month and the pick-up largely reflects energy effects just as the preceding sharp fall in inflation did," she said.

But other economists were less bullish, with Carsten Brzeski at ING saying prices could still post a 0.1 percent annual fall on the HICP measure while coming in flat on the national measure. In January yearly non-harmonised prices dropped by 0.4 percent.

"In terms of policy implications, it shows there's no real risk of deflation in Germany, that the negative rate was, at least for Germany, a one-off and mainly driven by higher energy prices," Brzeski said.

Preliminary euro zone inflation data, due out on Monday, is expected to show consumer prices fell by 0.5 percent in the single currency bloc in February after dropping by 0.6 percent last month.

Data on Friday showed Spanish EU-harmonised consumer prices falling by 1.2 percent on the year in February but they unexpectedly turned slightly positive in Italy after two months of negative inflation.

Pan-German inflation data is due to be published at 1300 GMT on Friday.

(Reporting by Michelle Martin; Editing by Toby Chopra)