Bloomberg News

Euro-Region Producer-Price Inflation Slows for Fifth Month

April 03, 2012

In Germany, Europe’s largest economy, producer prices rose 3.2 percent in February from a year ago, down from a 3.4 percent gain in January, today’s report showed. Photographer: Simon Dawson/Bloomberg

In Germany, Europe’s largest economy, producer prices rose 3.2 percent in February from a year ago, down from a 3.4 percent gain in January, today’s report showed. Photographer: Simon Dawson/Bloomberg

Euro-area producer-price inflation slowed for a fifth month in February as annual cost gains weakened from Germany to Spain and Italy.

Factory-gate prices in the 17-nation euro region rose 3.6 percent from a year ago after increasing a revised 3.8 percent in January, the European Union’s statistics office in Luxembourg said today. Economists had forecast a gain of 3.5 percent, the median of 19 estimates in a Bloomberg News survey showed. Eurostat initially reported a 3.7 percent rise in January.

The euro-region economy may struggle to regain strength after shrinking in the fourth quarter as austerity measures from Spain to Italy prompt companies to cut spending and output. Euro-region manufacturing contracted in March. Still, the European Central Bank tomorrow may keep borrowing costs on hold after cutting them twice in the fourth quarter as rising energy costs threaten to feed into euro-region inflation.

“The ECB is unlikely to cut interest rates further even though there are worrying signs that euro-zone economic activity is faltering anew,” said Howard Archer, chief European economist at IHS Global Insight in London. The latest signs of economic weakening are “still causing companies to be circumspect in their pricing policy to try and gain -- or even retain -- business.”

Crude Prices

The euro extended gains after the data were released, trading at $1.3367 at 11:36 a.m. in Brussels, up 0.4 percent.

The ECB may keep its benchmark interest rate at 1 percent, matching a record low, when policy makers meet tomorrow, a Bloomberg News survey shows. The central bank last month forecast the euro-region economy to shrink 0.1 percent this year, with inflation averaging 2.4 percent.

While crude oil prices have declined 3.6 percent over the past year, tensions in the Middle East have led to a 6.9 percent gain over the past two months. Euro-area inflation slowed less than economists forecast in March, with annual gains of 2.6 percent, partly because of rising oil prices.

Energy costs increased 9.3 percent from a year earlier, up from a 9.2 percent gain in January, today’s report showed. Annual price growth of intermediate goods and non-durable consumer goods weakened, while capital goods such as machines were 1.4 percent more expensive from a year earlier.

Core Inflation

“If you look analytically where the inflation in the euro zone is coming from at the moment, there isn’t really core inflation,” ECB council member Klaas Knot said on March 29. “There’s inflation as a result of the prices of goods, especially the oil price is fairly dominant.”

In Germany, Europe’s largest economy, producer prices rose 3.2 percent in February from a year ago, down from a 3.4 percent gain in January, today’s report showed. France and Italy reported annual gains of 4.3 percent and 3.2 percent, respectively. In Ireland, prices rose 3.8 percent, while Greece had a gain of 6.9 percent.

Producer prices rose 0.6 percent from January, when they advanced 0.8 percent, the report showed. In the 27-nation EU, prices increased 0.8 in the month and 4.3 percent in the year.

To contact the reporter on this story: Simone Meier in Zurich at smeier@bloomberg.net

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


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