European Economies: Inflation Rate Climbs to Five-Month High
Oct. 29 (Bloomberg) -- The inflation rate in the dozen nations sharing the euro rose to a five-month high in October as oil prices advanced to a record, weighing on consumer confidence.
Consumer prices rose 2.5 percent from a year earlier, up from 2.1 percent in September, according to Luxembourg-based Eurostat, the European Union's statistics office. The European Commission's index of consumer confidence unexpectedly fell in the month, while a gauge of business sentiment improved.
The surge in oil prices to above $50 a barrel has prompted some producers including Tessenderlo Chemie NV, a Belgian chemical- maker, to raise prices. With unemployment at a five-year high of 9 percent and few signs of a rebound in consumer spending, household- goods companies such as Unilever are struggling to pass on the full increase in costs, eroding profit margins.
``High oil prices are damping the pace of growth,'' said Sandra Petcov, an economist at Lehman Brothers International in London. ``As a result, producers are finding it hard to sell their products and consumers have less money to spend on other goods.''
The increase in the inflation rate was above the 2.3 percent median estimate of 36 economists in a Bloomberg survey. Today's figure from Eurostat is a preliminary estimate and final figures and a breakdown will be released on Nov. 17.
The euro was little changed against the dollar after the report, trading at $1.2747 at 12:30 p.m. in Brussels. European stocks declined, with the Dow Jones Stoxx 50 index dropping 0.2 percent to 2696.24 points.
No Change
The European Central Bank has kept its benchmark interest rate at 2 percent since June 2003 to support an economic recovery, even as inflation surpassed its 2 percent limit for six months. ECB President Jean-Claude Trichet on Oct. 25 urged companies and unions to limit price and wage increases to help the economy shoulder the effect of higher oil costs.
The potential effect of oil prices on growth has prompted investors to scale back expectations for an ECB rate increase next year, futures trading shows. The yield on the three-month Euribor futures contract for March settlement was 2.28 percent at 11:06 a.m. in Brussels, down 10 basis points from the start of October.
``The larger-than-expected jump in consumer price inflation is not a reason for the ECB to raise rates next Thursday, or indeed anytime soon,'' said Julien Seetharamdoo, an economist at Capital Economics in London. ``High oil prices are at least as much a threat to growth as they are to inflation, so the ECB's room for maneuver is limited.''
Companies Resilient
The Brussels-based commission's index of consumer confidence, based on a survey of 25,000 households, declined to minus 14 from minus 13, the commission said. The business confidence index rose to minus 2 from minus 3. Economists expected an unchanged consumer confidence reading, and a decline in the business sentiment index, according to the median of 33 forecasts in a Bloomberg survey.
``Resilience of businesses to the rise in oil prices has been quite surprising,'' said Kenneth Wattret, an economist at BNP Paribas in London. This suggests ``the underlying fundamentals of the euro zone economy are rather good, but with persistent high levels of oil prices we are not out of the woods as yet.''
The commission on Oct. 25 cut its growth forecast for the $9 trillion euro-region economy to 2 percent next year from 2.3 percent, citing the effects of oil prices. Europe will lag behind the U.S. for the 12th year in 13, the commission predicted.
In Germany, Europe's largest economy, consumer sentiment stagnated near a year-low this month, according to the Nuremberg- based GfK AG market research company. General Motors Corp. and KarstadtQuelle, Germany's largest department store owner, announced a combined 15,500 job cuts on Oct. 15.
Germany, Italy
An index of French household sentiment declined for the first time in five months to minus 19 in October from minus 17, a French government report showed today. Weighing on household demand, the nation's jobless rate held at 9.9 percent in September, according to the Labor Ministry.
The commission's first estimate of inflation is based on preliminary figures from countries including Germany and Italy. Germany's inflation rate rose to 2.1 percent, the highest since January 2002, the Federal Statistics Office said Oct. 25, as the cost of heating oil and gasoline surged.
Italy's inflation rate unexpectedly fell 2 percent, the lowest in almost five years, reports from Italy's 13 biggest cities showed yesterday. Prime Minister Silvio Berlusconi persuaded many retailers on Sept. 19 to freeze prices on some goods in order to prevent a drop in consumer demand.
The appreciation of the euro against the dollar this month is also curbing the effects of increased energy prices as it makes dollar-denominated imports cheaper, European Union Monetary Affairs Commissioner Joaquin Almunia said on Oct. 26.
ECB council member Nicholas Garganas said in an interview on Oct. 27 the euro's gains will help mitigate the effects of oil prices on the economy. The euro's strength was ``providing some relief from the recent increase in oil prices,'' Garganas said. |
