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OTTAWA

Canada Post says the union representing 48,000 postal workers has served notice that it will strike at 11:59 p.m. Thursday if they don

Inflation in Germany, Europe’s largest economy, unexpectedly eased in May after oil prices dropped from a 2 1/2-year high.

The harmonized inflation rate fell to 2.4 percent from 2.7 percent in April, the Federal Statistics Office in Wiesbaden said today. Economists had expected inflation to hold at the highest level since September 2008, the median of 17 forecasts in a Bloomberg News survey showed. On the month, consumer prices declined 0.2 percent.

Oil prices have dropped 11 percent this month after breaching $114 a barrel in April, leaving households with more money to spend. European Central Bank officials have signaled they are ready to raise borrowing costs further to curb price pressures after increasing the benchmark interest rate to 1.25 percent last month, even as peripheral nations such as Greece, Portugal and Ireland remain mired in a sovereign-debt crisis.

“Today’s German inflation numbers are just a temporary breather,” said Carsten Brzeski, an economist at ING Group in Brussels. “Obviously, with these inflation numbers, the ECB won’t hastily rush to a June hike. The German data is also not soft enough to put the ECB off from another hike in July.”

On a non-harmonized basis, inflation slowed to 2.3 percent in May from 2.4 percent and prices were unchanged on the month, the statistics office said.

Price Mandate

VCI, the main association of German chemical companies, on May 17 raised its forecast for production, sales and prices this year in the industry, on increasing global demand.

“We have to avoid commodity-price increases becoming entrenched in longer-term inflation expectations, which could have second-round effects on wages and prices,” ECB President Jean-Claude Trichet said yesterday. “We are carefully monitoring the situation and we stand ready to do whatever is necessary to fulfill our mandate.”

Euro-area inflation probably remained at 2.8 percent this month, according to the median of 27 forecasts in a Bloomberg survey. The European Union’s statistics office in Luxembourg will publish the data on May 31. Economists in a separate survey forecast the ECB will raise its main lending rate to 1.75 percent by the end of the year.

The German economy grew 1.5 percent in the first quarter as companies boosted spending to meet increased export demand and construction rebounded from a slump in the previous three months. The government predicts growth of 2.6 percent this year after a record 3.6 percent expansion in 2010.

At the same time, countries from Greece to Portugal are struggling to grow amid a debt crisis that’s shaking the foundations of the single currency. The euro area will grow 1.6 percent this year after expanding 1.8 percent in 2010, the European Commission forecast this month.

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European Central Bank Governing Council member Nout Wellink expects Greece to meet conditions for a 3.3 billion-euro ($4.7 billion) aid payment by the International Monetary Fund next month.

“There is enormous pressure on Greece to resolve this,” Wellink said in an interview in Amsterdam today. “It is difficult. I’m fully confident that in the end, Greece will meet the conditions, meaning that only then the IMF and Europe can say ‘yes.’”

Officials from the European Union, the IMF and the European Central Bank will complete their review of Greece’s progress in meeting the bailout terms next week. Their recommendation is needed before the fifth bailout payment can be distributed and as a condition for further aid being considered by the EU.

Jean-Claude Juncker, who leads a group of euro-area finance ministers, yesterday said the IMF may withhold aid for Greece as questions mount about how the country can avoid default next year fast cash without a hassle. The IMF is contributing to a June payment of 12 billion euros.

While the terms of Greece’s rescue last year assumed it would be able to tap the market for financing in 2012, that may be unlikely as its bonds slide. That puts Greece at risk of default, increasing the risk tied to any further disbursement of IMF funds.

“Exports are starting to pick up, which I find a positive point,” and Greek gross domestic product grew in the first quarter, said Wellink, who also heads the Dutch central bank. “The stronger the economic climate becomes, the easier this very difficult package can be realized” by the Greek government.

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NEW YORK

Barnes & Noble Inc.’s shares jumped more than 27 percent Friday morning after the company said media mogul John Malone’s Liberty Media Corp. has offered to buy it for about $1 billion.

Being part of a bigger conglomerate could boost Barnes & Noble’s ability to invest in remaking itself for the age of electronic books, analysts say.

Barnes & Noble said Thursday that the cash offer is worth $17 a share from the conglomerate chaired by billionaire Malone. The offer values Barnes & Noble shares 21 percent higher than their Thursday closing price of $14.11.

“As a public company covered by retail analysts, (Barnes & Noble) may not have the leeway or resources to keep up the technology battle,” wrote Gary Balter, an analyst at Credit Suisse in a report published Friday. “Yet as a division of a much larger company, (Barnes & Noble) can afford to fight the good fight, and based on its success to date, win.”

Some even think Barnes & Noble is worth more.

David Strasser of Janney Capital Markets said in a client note that the $17 per share bid is not enough, based on Barnes & Noble’s near- and long-term prospects as it builds up its e-book business and short-term advantages from the bankruptcy of brick-and-mortar competitor Borders Group Inc. Strasser values Barnes & Noble’s stock at $20 per share.

Barnes & Noble’s board hasn’t weighed in on the deal yet, and the deal is still subject to closing conditions, including one that founding Chairman Leonard Riggio keep a stake in the company and remain in a management position.

Liberty Media operates three publicly traded companies _ Liberty Interactive Inc., Liberty Starz Group and Liberty Capital Group _ through which it runs home-shopping network QVC, movie channel operator Starz LLC and holds stakes in numerous other online, media and communications companies.

Barnes & Noble, which is based in New York, has 705 stores nationwide and 636 bookstores run by its Barnes & Noble College Booksellers LLC subsidiary. The company book shoppers know today has its roots in a single New York bookstore, the Student Book Exchange, which Riggio opened in 1965. By the 1970s, his business had grown to include seven college bookstores, and he bought the then-failing Barnes & Noble bookselling brand and its existing Barnes & Noble bookstore on Fifth Avenue.

The company put itself up for sale in August in response to pressure from billionaire activist shareholder Ron Burkle. That move came during a proxy battle Burkle waged against the company in opposition to a poison pill plan that limited any single investor to a 20 percent stake. The plan was ratified by shareholders in late 2010.

Traditional book sellers have been facing increasing competition from online retailers and discounters such as Amazon.com Inc. as consumers get increasingly comfortable shopping online and turn to the Web to find lower prices on books and, increasingly, to buy e-books they can read on an e-reader, smartphone or iPad.

The changing climate has already rocked much smaller Borders Group: The nation’s second-largest book store chain, which is based in Ann Arbor, Mich., filed for bankruptcy court protection in February. It has since been carrying out plans to close more than a third of its 642 stores, and is reportedly in talks to sell more than half of the remaining stores. Barnes & Noble CEO William Lynch said in February that his company might be interested in purchasing a “minority” of Borders’ stores.

While Barnes & Noble hasn’t been hurt as badly as Borders, its quarterly results have been weighed down recently by large investments in its online and e-reader businesses _ markets both companies have turned to as ways to stem the steady decline in book sales in recent years.

Barnes & Noble reported growth in its online store in the most recent quarter, and said both this and its bricks-and-mortar stores were helped by sales of its Nook e-reader. The Nook has gained fans but has not managed to match the buzz generated by Amazon’s Kindle e-reader.

Shares rose $3.86 per share to $17.97 in morning trading on Friday.

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China, the biggest foreign owner of U.S. Treasuries, trimmed its holdings for a fifth straight month in March as American lawmakers grappled with a government debt set to reach its legal limit. [bn:WBTKR=HOLDCH:IND]

The Asian nation owns $1.145 trillion [] of the debt, down $9 billion, or less than 1 percent, from the previous month, according to U.S. government data released yesterday. The holdings reached a record $1.175 trillion in October last year.

China’s concern that U.S. government securities may become more risky because of the nation’s deficits and debt burden prompted its call this month for President Barack Obama’s administration to lay “a solid fiscal foundation” for long- term growth. Former Chinese central bank adviser Yu Yongding said last month that China should stop buying Treasuries because of the risk that the U.S. may eventually default.

China may “gradually cut its U.S. Treasuries as it seeks to diversify its foreign-exchange holdings,” said Yao Wei, a Hong Kong-based economist with Societe Generale SA. She said “China is probably routing trades through other places such as London,” meaning U.S. data may not give a full picture.

The United Kingdom increased its holdings by $29.7 billion to $325.2 billion in March.

In the U.S., Republicans and Democrats have been arguing over when and how to raise a $14.3 trillion debt limit. Obama has said that a failure to act may disrupt the global financial system and plunge the nation into another recession.

Debt Ceiling

U.S. Treasury Secretary Timothy F. Geithner said yesterday that he has used accounting measures to extend the deadline until Aug. 2.

“China has kept on lending money to the U.S. to keep its export machine going, and to prevent losses” on its holdings of Treasuries, Yu said last month. “Perhaps it is too late to do anything about the existing stock without causing a serious political and financial backlash. But at least China should stop continuing building up its holdings.”

Officials including central bank adviser Li Daokui have urged diversification of the nation’s foreign exchange reserves away from U.S. debt.

Japan, the second-largest holder of Treasuries, increased its holdings by $17.6 billion to $907.9 billion in March from $890.3 billion in February. Hong Kong, counted separately from China, reduced its holdings by $2.5 billion to $122.1 billion from $124.6 billion.

–Zheng Lifei. Editors: Paul Panckhurst, Ken McCallum.

To contact Bloomberg News staff for this story: Zheng Lifei in Beijing at +86-10-6649-7560 or lzheng32@bloomberg.net

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NEW YORK

French President Nicolas Sarkozy has met with Libya’s opposition leader amid questions about the death of a French military contractor in a Libyan rebel stronghold.

The meeting in Paris on Saturday came the day after Mahmoud Jibril, top representative of the Libyan Transitional National Council, met with U.S. officials in Washington.

Jibril did not speak to reporters on his way out of the meeting with Sarkozy.

France has been a major backer of the rebels, and France has played a leading role in the NATO campaign of airstrikes against Libyan leader Moammar Gadhafi’s forces.

The director of a French military contracting company was killed this week in rebel-controlled Benghazi, hours before he was supposed to meet with Jibril’s transitional government.

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China raised banks’ reserve requirements for the fifth time this year to restrain prices, underscoring the risk that tightening measures will cause a slowdown in the world’s second-biggest economy.

Reserve ratios will increase 0.5 percentage point from May 18, the People’s Bank of China said on its website today. That will boost levels for the nation’s biggest lenders to a record 21 percent.

The central bank moved after reports yesterday showed inflation and lending exceeded economists’ estimates in April, with consumer prices rising more than 5 percent for a second month. Premier Wen Jiabao aims to tame inflation that is spreading beyond food to other goods, while sustaining growth as the economy shows signs of cooling.

“Controlling inflation will definitely entail a slowdown in growth and the authorities understand that,” said Wang Qing, chief China economist at Morgan Stanley. “The slowdown we’ve seen so far doesn’t indicate there is a risk of a hard landing, that’s why the policy priority at the moment is still to control inflation.”

Commodities extended declines after the announcement, with the Standard & Poor’s GSCI Index of 24 raw materials sliding 1.7 percent to 669.25 points at 11:42 a.m. in London.

Stronger Yuan

Besides raising interest rates and reserve requirements, and guiding banks to limit credit growth, officials have accelerated gains in the yuan, which broke 6.5 per dollar for the first time since 1993 on April 29. U.S. Treasury Secretary Timothy F. Geithner pushed at talks in Washington this week for faster appreciation that he says would boost consumption in China, ease inflation and limit global economic imbalances.

Jim O’Neill, who chairs Goldman Sachs Asset Management and coined the acronym BRIC for the economies of Brazil, Russia, India and China, said today that China’s inflation “won’t be a problem” in the second half of this year. The nations’ stocks may have a “big rally” as price gains moderate and tightening ends, he told reporters in Hong Kong.

Weaker growth in industrial production, detailed in yesterday’s statistics bureau report in Beijing, came after a manufacturing index declined in April, signaling economic growth may be cooling after a 9.7 percent expansion in the first quarter. Power shortages in some provinces may also have affected the output numbers. The economy’s growth peaked at 11.9 percent during last year.

Locking Up Cash

Today’s move locks up about 370 billion yuan ($57 billion), according to Barclays Capital. It may have been triggered by the extra cash entering the financial system from maturing central bank bills, according to Royal Bank of Scotland Plc.

Inflows of so-called hot money, or speculative capital, may also have been a factor, said Lu Ting, a Hong Kong-based economist for Bank of America Merrill Lynch.

The ruling Communist Party aims to prevent increases in food and housing costs from fueling social unrest. Consumer prices jumped 5.4 percent in March, the most since July 2008. In April, the gain was 5.3 percent.

Clothing costs climbed 1.4 percent last month from a year earlier, the biggest gain since 1997, a statistics bureau report showed yesterday. Non-food inflation held at 2.7 percent, the fastest pace in at least six years. Food inflation, the biggest single driver of the consumer-price index, exceeded 11 percent for a third month.

Higher commodity costs, inflows of capital, and the extra cash in the economy from a stimulus program started in late 2008 have added to inflation risks. The nation’s world-record foreign-exchange reserves exceeded $3 trillion for the first time in March.

Unilever, the world’s second-largest consumer-goods maker, said March 31 that it was among companies to have postponed price increases at the government’s request. Officials later announced that the company will be fined for telling the media of its plans to raise prices.

–Nerys Avery, Sophie Leung. Editors: Paul Panckhurst, Nerys Avery.

To contact Bloomberg News staff for this story: Paul Panckhurst in Hong Kong at +852-2977-6603 or ppanckhurst@bloomberg.net

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