February flash: +2.7% y/y

MNI survey median: +2.6% y/y
MNI survey range: +2.4% to +2.8% y/y

January final: +2.6% y/y

FRANKFURT (MNI) – Annual Eurozone consumer price inflation
unexpectedly ticked back up to +2.7% in February after reaching a
five-month low the previous month, Eurostat estimated on Thursday.

Suggesting that prices rebounded 0.5% m/m, February’s results show
that the recent downward trend in the yearly rate ended at two months.

An official breakdown of key inflation drivers will be released on
Mach 14.

Earlier this week, preliminary CPI releases out of various German
states had all highlighted jumps in annual inflation rates for both
household energy and motor fuel. Food price inflation in Germany was
also higher on the year.

While favourable base effects and slowing activity are widely
expected to lead to a slowdown in inflation in the coming months,
costlier energy poses upside risks.

Manufacturers polled in February’s PMI report linked more expensive
fuel and raw material to a seven-month high in input price inflation. A
European Commission survey showed a rising or above-average proportion
of companies in most major sectors looking to raise prices in the near
term.

Nevertheless, companies’ ability to pass on costs to clients
remains limited for the time being. February’s PMI reported a drop in
prices charged for the third consecutive month, as cheaper services
offset the rise in manufacturing.

With unemployment hitting a record high 10.7% in the
Eurozone last month, companies may feel even less inclined to shift the burden to
customers.

Over the same period, households polled by the Commission revised
down their outlook for prices, though more than average still expect
prices to trend higher over the next year.

Forecasters polled in a recent ECB survey left their inflation
projections largely unchanged, with HICP expected to increase 1.9% this
year compared to +1.8% in November. For 2013, inflation is forecast at
+1.7%, down 0.1 percentage point from the previous survey.

“Based on the individual probability distributions, the balance of
risks to the shorter-term point forecasts is assessed to be on the
downside for 2012 and broadly balanced for 2013,” the ECB report said.

Later this month, the ECB will publish its staff projections, which
will include forecasts for Eurozone inflation both for this year and
2013. Earlier projections saw HICP averaging between +1.5% and +2.5% in
2012 and between +0.8% and +2.2% next year.

— Frankfurt bureau, +49-69-720 142; email: frankfurt@marketnews.com —

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