Absolutely No Doubt About Inflation. It's already arrived "in force" in Europe. Americans will be the last to discover what's hit the world economy and only JUST BEGINNING.
Cut and paste below is from Bloomberg.
Isopatch
"European Economies: German, Italian, French Prices Up (Update1)
By Hellmuth Tromm
Paris, June 28 (Bloomberg) -- Inflation is accelerating in the three largest economies in the euro region, government reports today showed, raising expectations for higher interest rates.
The price of goods imported into Germany rose at the fastest pace in almost a decade in May, while the inflation rate in Italy rose to a three-and-a-half-year high in June. French manufacturers surveyed this month planned to raise prices and step up production as economic growth quickens across the 11-nation euro zone.
The three nations account for three-quarters of the euro economy, which stretches from Finland to Portugal. Rising oil prices and the euro's slide have pushed up raw material costs. Now faster economic growth is making it easier for companies to increase prices charged to consumers, prompting expectations that the European Central Bank will boost borrowing costs.
``The ECB will need to raise rates to slow down the engine of the economy,'' said Roch Heraud, an economist at Caisse Nationale du Credit Agricole. He expects a quarter-point increase in the ECB's benchmark refinancing rate to 4.5 percent by year-end, following five increases since early November.
Expectations among investors that the interest-rate gap between the U.S. and the euro region will narrow have helped boost the euro by 5 percent in the past month. The Federal Reserve is expected to leave its main lending rate unchanged at 6.5 percent today. The euro was recently at 94.14 U.S. cents.
Just the Beginning
The euro zone's economy is likely to expand 3.5 percent this year, the fastest pace in a decade, and may outpace the U.S. next year, according to forecasts from the Organization for Economic Cooperation and Development.
``Europe is only at the very beginning of a cycle of economic growth,'' said Guy Nafilyan, chief executive of Kaufman & Broad SA, the largest homebuilder in the Paris region.
The strengthening economy is reducing unemployment and boosting wages. The French government is likely to approve a 3.2 percent increase in the minimum wage, while Italy today reported that wages rose for a second consecutive month in May.
The cost of goods imported into Germany surged by 2 percent in May from April, the Federal Statistics Office said, twice analysts' expectations and the largest gain since September 1990. Consumer prices in Italy rose 0.3 percent in June from May, and 2.7 percent from a year earlier.
In France, an index measuring 2,500 executives' expectations for their companies' production rose to 30, the highest since the survey began in 1976, from a revised 27 in May. An index of manufacturers' expectations for their prices rose for a second month, indicating that a growing number are preparing to charge more for their goods.
`Dreadful' Inflation Figures
In Germany, companies such as Deguessa-Huels AG, the country's biggest specialty chemical maker, and Volkswagen AG, Europe's No. 1 carmaker, have begun raising prices after oil costs nearly tripled since the start of 1999 and the euro's slide made imported goods more expensive. Consumer prices in Europe's largest economy rose in June at the fastest rate in almost three years.
Today's import price report provides ``another dreadful set of inflation figures,'' said Catherine Lee, an analyst at Greenwich Natwest in London. She predicted the ECB will boost its benchmark rate to 4.75 percent by the end of 2000.
The central bank last raised rates on June 8, by a half point, to restrain inflation. The ECB also switched to a variable rate at its weekly money market auctions from a fixed rate, a move that may lead to higher borrowing costs as commercial banks bid at higher rates to borrow funds from the central bank.
At the first variable rate auction yesterday, the ECB lent funds at a weighted average rate of 4.32 percent, above its 4.25 percent floor rate.
Otmar Issing, the ECB's chief economist, said in an interview with Germany's Focus Money magazine, published today, that ``if the euro's weakness threatens internal price stability, through an increase in import prices, the ECB will act accordingly.''
Near the Ceiling
The euro has fallen 19 percent against the dollar since the start of 1999. The single currency's ``protracted weakness is seeping through'' to import prices and inflation, Lee said.
The euro region's inflation rate was 1.9 percent in May -- just below the ECB's 2 percent ceiling. Inflation ``is not expected to fall significantly in the future,'' ECB President Wim Duisenberg told the European Parliament last week.
Eight of the 11 euro nations already have inflation rates above the ECB's limit. Irish consumer prices rose 5.1 percent in May from a year earlier, while Spain's rose 3.2 percent.
Many analysts expect the region's inflation rate will surpass the ECB's ceiling soon, after Germany reported that prices rose 1.9 percent in June from a year before, speeding up from the 1.4 percent pace in May.
German import prices were pushed higher in May by a 15 percent monthly gain in crude oil imports. Natural gas climbed 6.5 percent from April. Other raw materials rose as well, with an 11 percent increase in the price of copper leading the gains.
From a year earlier, import prices climbed 11.7 percent, the biggest increase since October 1981. Excluding oil products, import prices rose 1 percent in May and leapt 6.7 percent from a year earlier. The cost of imports rose in 15 of the past 16 months, declining only in April, by 0.3 percent, after oil prices temporarily fell." |
