Business confidence in Germany posted a surprise pick-up in November but provisional figures showed that the annual inflation rate hit 3% in November.
This was the highest rate since February 1994, as rising costs for energy and food pushed up consumer prices.
Earlier the closely watched business climate index, calculated each month by the Munich-based economic research institute Ifo, rose to 104.2 points from 103.9 points in October, Ifo said. Analysts had expected the index to fall again to 103.4 points.
The survey found that 'companies have assessed their current situation more positively than in October but are somewhat more cautious regarding the six-month business outlook'.
'The results indicate that the currently strong economy is only gradually cooling,' an Ifo statement said.
For its monthly survey, Ifo polls around 7,000 companies about their assessment of current business and their expectations for the next six months.
A breakdown of the data showed that the current sentiment sub-index edged up to 110.4 points from 109.6 in October. The expectations sub-index slipped slightly however, to 98.3 points from 98.6 points but this was still above forecasts for 98 points.
Looking at various sectors of the economy, Ifo found sentiment among industrial groups was brighter for both the current and six-month outlooks, despite the euro's rise in value against other major currencies.
Current prospects had worsened a bit in the construction sector, meanwhile, but firms there expressed also some optimism with regard to future business.
Retailers were more downbeat however, assessing both the current and six-month outlook less favourably than in October.
Before the survey was released, German Finance Minister Peer Steinbrueck had defended the strong euro, while acknowledging it was in part responsible for darkening economic prospects.
