January: +0.7% m/m, +3.7% y/y

MNI survey median: +0.3% m/m, +3.9% y/y
MNI survey range: -0.2% to +1.4% m/m

December: -0.2% m/m, +4.3% y/y
November: +0.2% m/m, +5.4% y/y (revised from +0.3% m/m)
October: +0.1% m/m, +5.5% y/y
September: +0.3% m/m, +5.8% y/y
August: -0.2% m/m, +5.8% y/y
—

FRANKFURT (MNI) – Producer price inflation in the Eurozone rose
more than expected in January, with gains in all major components led by
energy, Eurostat reported on Friday.

Following December’s brief decline, prices rose 0.7% on the month
in January, bringing the annual rate to +3.7%. Median forecasts had
foreseen a more modest monthly rise but a stronger jump on the year.

Energy prices rose 2.2% on the month, completely offsetting
December’s slide and bringing the annual rise to 9.2%. Factoring out the
impact of energy, core PPI increased 0.3% and 1.9% on the month and
year, respectively.

Ongoing tensions between Iran and the West, which have pushed Brent
crude to record highs in euro terms recently, are likely to underpin
producer price inflation in the near term.

However, market participants may be overestimating the impact of a
loss of Iranian oil in the current environment, the International Energy
Agency suggested last month.

“The market in 2012 likely has sufficient supply-side flexibility –
between existing OPEC spare capacity and expected 2012 capacity
additions among OPEC and non-OPEC producers – to adjust to any loss in
Iranian volumes,” the agency said in its monthly Oil Market Report.

Intermediate goods prices, usually the first to reflect commodity
price trends were 0.4% higher m/m to give an annual rate of +1.6%.

Capital goods output price inflation picked up to +0.3% between
December and January, resulting in a y/y change of +1.3%. Consumer
durable goods output prices increased 0.5% m/m and 2.4% y/y, while
non-durables were up 0.2% and 3.0% on the month and year, respectively.

Manufacturers cited in a recent PMI poll blamed higher fuel and raw
material prices for the eight-month high in input price inflation. A
European Commission survey showed selling price expectations rising in
industry, remaining above average in all major sectors except
construction.

Subdued demand and strong competition appears to have limited
companies’ ability to fully pass on their higher costs to clients for
the time being. The PMI report showed that output prices rose only
marginally in February.

Nevertheless, evidence has already emerged that consumers are
feeling the impact of higher energy prices.

Earlier this week, preliminary CPI data from various German states
all showed jumps in annual inflation rates for both household energy and
motor fuel. The latest Belgian CPI report also pointed to a strong price
impact from energy.

Forecasters polled in a recent ECB survey left their projections
for consumer price inflation 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 put HICP 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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