Market Commentary and Intraday News

Eurozone Producer Prices Rise Sharply On Energy Costs

234 days ago

(RTTNews) - Eurozone's producer prices increased at a faster pace in August driven by higher energy prices and left little room for further interest rate reductions from the European Central Bank to prop up the ailing economy.

The producer price index increased 0.9 percent month-on-month in August, following the previous month's 0.3 percent gain, which was revised from 0.4 percent, statistical office Eurostat said Tuesday. Economists had forecast a slower growth of 0.6 percent.

The latest rise in producer prices was the biggest since January. A faster rate was last seen in January 2011, when prices rose 1.3 percent.

On an annual basis, output prices rose 2.7 percent in August, after increasing 1.6 percent in July. Economists had expected a 2.6 percent rise. The latest inflation figure is the highest since March, when it was 3.5 percent.

Driving the acceleration in price growth, energy costs climbed 2.4 percent, reflecting mainly a sharp increase in global oil prices. Energy prices rose 7.9 percent from a year ago.

Core producer prices, excluding energy and construction, increased 0.3 percent, reversing the previous month's 0.1 percent decline. Annually, the core figure was 1 percent compared to 0.8 percent in the previous month.

Among member states, the largest annual increases in the overall index were observed in Bulgaria, Greece and Cyprus, and the smallest in Malta, Slovenia and Austria, the agency said.

In EU27, producer prices moved up 1 percent sequentially in August, faster than July's 0.3 percent gain. Year-on-year, the index advanced 2.7 percent, after rising 1.4 percent in July.

Despite the spike in costs, the weak economic situation is likely to prevent companies from passing on the higher costs to consumers in a bid to retain business, IHS Global Insight Economist Howard Archer said.

Results of the latest purchasing managers survey showed that manufactures' input prices in the single-currency bloc rose for the first time in four months in September, owing to the recent strengthening of global oil prices. Meanwhile, output prices fell for the fourth month running.

Rising energy prices have pushed consumer price inflation in the euro area to a six-month high of 2.7 percent from 2.6 percent in August.

The ECB kept the refi rate at 0.75 percent since July when it took the rate below 1 percent for the first time in the bank's history. Although the central bank is seen holding key rate at this week's meeting, the bank will probably reduce rates before the end of this year.

"With the underlying inflation situation in the Eurozone still looking far from alarming and with the Eurozone almost certainly having suffered further GDP contraction in the third quarter and still facing a troubling outlook, we maintain the view that the ECB will take interest rates down from 0.75% to 0.50% in the fourth quarter," Archer noted.

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