INFLATION in Germany, Europe's largest economy, unexpectedly accelerated in July as energy costs increased.

The inflation rate, calculated using a harmonized European Union method, rose to 2.6 percent from 2.4 percent in June, the Federal Statistics Office in Wiesbaden said yesterday in an initial estimate. Prices climbed 0.5 percent from the previous month.

European Central Bank President Jean-Claude Trichet said earlier this month that eurozone inflation will stay "clearly above" the central bank's 2 percent limit in coming months and signaled concern that price pressures may fuel wage demands.

In Germany, rising energy costs will hit consumer confidence next month, market-research company GfK said yesterday.

"We haven't yet seen the high point of price developments in Germany - inflation will creep toward 3 percent in the coming months," said Alexander Koch, an economist at UniCredit Group in Munich.

"The ECB will stay on course and probably raise interest rates another time in October."

The ECB this month raised borrowing costs for a second time in 2011, bringing its benchmark to 1.5 percent. It forecasts eurozone inflation will average 2.6 percent this year and 1.7 percent in 2012.

On a non-harmonized basis, German inflation accelerated to 2.4 percent from 2.3 percent and consumer prices rose 0.4 percent in the month, the statistics office said.

Bundesbank President Jens Weidmann said earlier this month that interest rates in the eurozone are "still relatively low," indicating he sees further room to tighten monetary policy.