Europe Producer-Price Inflation Quickens to Record 8%
European producer prices rose the most in at least 18 years in June on soaring energy costs, sharpening the European Central Bank's dilemma over how to balance faster inflation and slowing economic growth.
The 8 percent increase from a year ago in factory prices in the 15 nations that use the euro was the biggest since the series began in 1990 and followed a 7.1 percent gain in May, the European Union statistics office in Luxembourg said today. Economists expected a 7.9 percent increase, according to the median of 27 forecasts in a Bloomberg News survey.
The ECB lifted the benchmark interest rate to a seven- year high last month on concerns that consumer-price inflation at twice the 2 percent limit will become embedded in the economy even as growth slows. ECB President Jean- Claude Trichet said that the central bank “will do in the future what is appropriate to deliver price stability.''
“Manufacturers throughout the euro zone have been able to pass on higher food and energy costs,'' said Philip Shaw, an economist at Investec Securities in London. “That's being reflected in consumer prices. While there's no case for a rate cut right now, we're similarly cautious about calls for higher rates because of the damage it would do to the economy.''
Consumer-price inflation accelerated to 4.1 percent last month, the fastest pace in more than 16 years, the statistics office reported last week. A detailed report on July consumer prices will be released Aug. 14.
Oil Prices
Producer-price increases in June were led by energy, which jumped 21.4 percent from a year earlier, the biggest gain on record. Crude-oil prices, while down 13 percent from a peak above $147 a barrel on July 11, are still up more than 60 percent in the past year.
The higher energy prices are pushing up raw-material costs and putting pressure on companies to pass along the increases to consumers. A gauge of companies' selling-price expectations rose to a 13-year high in July, the European Commission reported last week.
Ludwigshafen, Germany-based BASF SE, the world's biggest chemical producer, on July 31 said it will seek further price increases to cover higher costs even as slowing economic growth threatens orders. The company already raised prices for chemicals used in paper, crop protection and pharmaceuticals by as much as 20 percent last quarter.
`No Way Out'
“There's no way out,'' BASF Chief Executive Officer Juergen Hambrecht said in an interview with Bloomberg Television July 31. “We're paying higher prices than we're charging.''
From a month earlier, euro-area producer prices rose 0.9 percent in June, compared with a 1.2 percent increase in the prior month. Energy prices gained 2.7 percent in the month, slower than the 4.1 percent increase in May.
Concerned that workers will seek bigger pay raises to compensate for increased living expenses, the ECB's Trichet reiterated calls for wage moderation on July 18. Deutsche Lufthansa AG, Europe's second-biggest airline, last week agreed to a 5.1 percent pay increase for ground staff and cabin crew.
All 60 economists in a Bloomberg News survey say they expect the ECB to keep its main interest rate at 4.25 percent when policy makers meet in Frankfurt on Aug. 7.
Filed under: marketing by Forest