UPDATE 1-Energy boosts Sept euro zone prices, trade in deficit

Published 10/15/2010, 06:22 AM
Updated 10/15/2010, 06:24 AM
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(Adds economists' comments)

By Jan Strupczewski

BRUSSELS, Oct 15 (Reuters) - More expensive fuel pushed up euro zone consumer prices as expected in September, data showed on Friday, but core inflation remained subdued, showing that economic recovery has not yet boosted price pressures.

Separately, data showed the 16 countries using the euro swung to an external trade deficit in August from a surplus in July as both exports and imports rose, but imports marginally more so, in a sign of sustained external and domestic demand.

The European Union's statistics office Eurostat said consumer inflation in the euro zone was 0.2 percent month-on-month, and confirmed its earlier estimate that year-on-year prices grew 1.8 percent.

This is right on the European Central Bank's price stability target of below, but close to 2 percent over the medium term.

"September's rise in inflation was primarily due to unfavourable energy base effects and it does little to dilute the view that inflation is not a significant problem in the euro zone," said Howard Archer, economist at IHS Global Insight.

The price growth was mainly a result of a 7.7 percent annual jump in energy prices, with fuels for transport contributing 0.4 percentage points of the total 1.8 percent annual rise and heating oil adding another 0.16 percentage point.

Removing volatile energy and unprocessed food prices, the core inflation measure showed prices grew only 1.0 percent year-on-year, the same as in August and July.

"Euro zone consumer price inflation could edge up a little further in the near term due to unfavourable energy base effects and higher food prices, but it should remain moderate and will likely be largely below 2 percent in 2011," Archer said.

"With euro zone growth likely to be relatively muted and bumpy over the coming months in the face of serious headwinds, and unemployment likely to stay relatively high, underlying inflationary pressures seem set to remain contained," he added.

"Furthermore, the euro's current strength will dampen inflationary pressures," Archer said.

The euro edged up 0.1 percent to $1.4089 on Friday, just shy of an eight-month peak of $1.4123 hit on Thursday.

Eurostat said that the euro zone's external trade balance in August swung to a 4.3 billion euro deficit from a downward-revised 6.2 billion surplus in July.

Year-on-year, unadjusted exports surged 31 percent in August while imports jumped 32 percent, Eurostat said.

Adjusted for seasonal swings, exports grew 1 percent month-on-month in August and imports rose 1.8 percent and all of the euro zone's top four economies -- Germany, France, Italy and Spain -- recorded a deterioration in their trade balances.

Despite the euro's sharp rise in the last month, economists note that exchange rates affect trade much less than economic growth-linked demand and that currency weakness or strength only has an impact with a time lag of several months.

"The last three months (from June to August) are about 6 percent above the preceding three months for both imports and exports, pointing to dynamic activity during the summer," said Dominique Barbet, economist at BNP Paribas.

"We do not expect the euro's sharp appreciation to have a material adverse impact on foreign trade before next year," he said.

(Reporting by Jan Strupczewski, editing by Rex Merrifield/Ruth Pitchford)

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