Bloomberg News

Inflation Accelerated in Three German States on Energy Costs

June 28, 2011

(Updates with Baden-Wuerttemberg starting in first paragraph.)

June 28 (Bloomberg) -- Inflation in the German states of North Rhine-Westphalia, Baden-Wuerttemberg and Hesse accelerated in June, led by higher energy costs.

In Baden-Wuerttemberg, the inflation rate rose to 2.3 percent from 2.2 percent in May, while increasing to 2.5 percent from 2.3 percent in North Rhine-Westphalia and to 2.1 percent from 2 percent in Hesse, the states’ statistics offices said today. Inflation held steady in Bavaria, Brandenburg and Saxony. The Federal Statistics Office in Wiesbaden will release German inflation, based on data from six states, later today.

Inflation in the 17-nation euro region has breached the European Central Bank’s 2 percent limit every month since December and President Jean-Claude Trichet today called for strong vigilance on price threats, indicating a July increase in the benchmark interest rate. While crude oil costs have retreated over the past month, they’re still up 16 percent from a year earlier, adding pressure on companies to raise prices.

“Upward pressure from energy prices may ease somewhat in the coming months but inflation will remain above 2 percent for quite some time,” said Ralph Solveen, head of economic research at Commerzbank AG in Frankfurt. “The German economy is doing well, inflation is accelerating and the cost situation is becoming increasingly uncomfortable for companies.”

Economists expect the German harmonized inflation rate to rise to 2.5 percent in June from 2.4 percent in the previous month, the median of 19 forecasts in a Bloomberg survey shows.

In Baden-Wuerttemberg, heating oil prices jumped 19 percent in June from a year earlier, today’s report showed. Fuel was 9.3 percent more expensive in the year.

Rising Confidence

BASF SE said on June 16 it’s raising prices for formic acid in Europe and K+S AG, Europe’s biggest potash producer, in June increased prices for the crop nutrient.

While euro-region governments from Ireland to Spain are cutting spending to plug their budget deficits, the German economy is showing few signs of slowdown, giving companies room to pass on higher costs. Business confidence unexpectedly increased in June and unemployment dropped for a 23rd straight month in May, encouraging consumer demand.

The Bundesbank said on June 10 that “the prospects of the German economy experiencing a lengthy period of expansion are rising” and the recovery “has evolved into a broad-based upturn.” The Frankfurt-based central bank forecasts Europe’s largest economy will grow 3.1 percent this year after a record 3.6 percent expansion in 2010.

In the euro region, inflation probably accelerated to 2.8 percent in June from 2.7 percent in May, a separate survey showed. Eurostat, the European Union’s statistics office in Luxembourg, will release that data on June 30.

ECB Executive Board member Juergen Stark said yesterday that the bank is “ready not to leave the interest-rate increase from April stand by itself.” Trichet said in Amsterdam today that policy makers are “united on the goal of solidly anchoring inflation expectations.”

--With assistance from Kristian Siedenburg in Budapest and Jeffrey Black in Frankfurt. Editors: Simone Meier, Jennifer M. Freedman

To contact the reporters on this story: Jana Randow in Hamburg at jrandow@bloomberg.net; Christian Vits in Frankfurt at cvits@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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