🔺 What to do when markets are at an all-time high? Find smart bargains, like these.See Undervalued Stocks

UPDATE 1-Euro zone Feb PPI jumps as ECB rate hike looms

Published 04/04/2011, 06:25 AM
Updated 04/04/2011, 06:28 AM

* Euro zone factory gate prices spike on energy costs

* Higher PPI to add to ECB inflation concerns

* ECB tipped to raise rates several times this year

(Adds economists' comments)

By Jan Strupczewski

BRUSSELS, April 4 (Reuters) - Surging energy costs drove euro zone factory gate prices higher in February, likely setting the seal on the European Central Bank's first interest rate rise since 2008 later this week.

The European Union's statistics office Eurostat said on Monday producer prices in the 17 countries using the euro rose 0.8 percent month-on-month for a 6.6 percent year-on-year increase, signalling growing pressures early in the inflation pipeline.

Economists polled by Reuters had expected a 0.7 percent monthly gain and a 6.7 percent annual rise in producer prices, which are often a precursor to changes in consumer prices.

"The further spike up ... will reinforce the ECB's concern that high energy and commodity prices are exerting serious inflationary pressures lower down the supply chain," said Howard Archer, economist at IHS Global Insight.

Energy prices rose 1.2 percent on the month for a 12.8 percent annual increase, Eurostat said.

It revised down gains in factory gate prices for January to 1.3 percent month-on-month from 1.5 percent and to 5.9 percent year-on-year from 6.1 percent.

Producer price increases, unless absorbed by intermediaries and retailers, translate into higher consumer prices, annual growth of which the ECB aims to restrict to below but close to 2 percent in the medium term.

The bank is widely expected to raise interest rates on Thursday for the first time since October 2008.

Consumer price inflation was 2.6 percent in March, Eurostat estimated last week, up from 2.4 percent in February.

According to an indicator designed to predict inflation trends from the Economic Cycle Research Institute, inflationary pressures in the euro zone reached a 29-month high in February.

'TOUGH ON INFLATION'

"The ECB hopes by sending out the message that it will be tough on inflation it can contain households' inflation expectations and companies' pricing expectations," Archer said.

"(It would) thereby limit the risks that the current inflation spike up resulting from high energy and commodity prices will feed through to have significant second-round inflationary effects."

Economists expect consumer inflation will remain above the ECB target in 2011 and that an April 7 rate rise from a record low of 1 percent could be just the first of several this year.

"We are now leaning towards the view that the ECB will hike interest rates by a further 25 basis points in both the third and the fourth quarters, taking them up to 1.75 percent by the end of the year," Archer said.

(Reporting by Jan Strupczewski, editing by Rex Merrifield, John Stonestreet)

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.