In March, the cost of living in Germany rose by 1 percent year-on-year, slumping from an annual rate of 1.2 percent in February and 1.3 percent in January, the German Federal Statistics Office, Destatis, announced on Friday.

This was the lowest inflation rate in Germany since August 2010, the agency announced, caused by decreasing prices for oil-based products over the course of a mild winter.

Prices for heating oil and car fuels, for example, had fallen 4.2 percent compared with March 2013, Destatis announced.

Significantly higher prices had to be paid for food, which rose 2.2 percent overall. Dairy products' prices spiked 10.8 percent, for example.

Using the Harmonized Index of Consumer Prices, the yardstick of the European Central Bank (ECB), the German inflation rate came in even lower, with just 0.9 percent. The rate contrasts sharply with the 2 percent inflation goal the ECB considers desirable with regard to price stability.

The fourth consecutive monthly drop in the German inflation rate might fan fears of prices eventually starting to fall. The phenomenon is called deflation and is bad for the economy as a whole as it stalls investment and job creation, leading to shrinking output.

Experts from Germany's Institute for the Global Economy, however, have predicted a sharp rise in inflation for later this year.

In a growth report released last month, the economists predicted an inflation surge to 2.5 percent as a nascent recovery this year will peak in the first half of 2015.

uhe/mkg (AFP, dpa, Reuters)