the bastiches pulled it...too unbullish i guess...here's a copy:
European Economies: ECB's Welteke Signals Rate Rise (Update1)
By Catherine Hickley
Frankfurt, Aug. 25 (Bloomberg) -- Bundesbank President Ernst Welteke warned that the euro's slide and soaring oil prices are sucking inflation into the 11 nations sharing the European currency, comments that reinforced investors' expectations the European Central Bank will raise interest rates.
There's an ``increasing'' risk that inflation will accelerate, Welteke said. The ECB is ``anything but satisfied'' with the euro's exchange rate, he said.
The European single currency has shed a tenth of its value against the dollar this year, and more than a fifth since its introduction in January 1999. A German report today showed that the currency's weakness increased the cost of imported goods, such as raw materials, for a third consecutive month in July.
Welteke, one of 17 officials that vote on ECB interest rates, has previously played down the risk of inflation, focusing instead on the need to boost economic growth. As recently as last month, he said inflation risks were ``relatively low.''
Today's comments, made in a speech at the Bundesbank's regional branch in Dusseldorf, suggest there may already be a consensus among policy-makers on raising rates. ECB Chief Economist Otmar Issing, and Matti Vanhala, head of the Finnish central bank and another ECB council member, warned earlier this week that inflation risks were increasing.
The yield on interest-rate futures contracts for September delivery rose 2 basis points today to 4.97 percent, evidence of mounting expectation among investors that the ECB will raise rates for a sixth time in a year.
Higher Rates
The ECB is likely to raise the benchmark refinancing rate by a quarter point to 4.25 percent on Aug. 31, the first meeting of policy-makers following a four-week vacation, according to the median forecast of 18 banks by Bloomberg News.
Any increase above that level could raise concerns about the impact on the German economy, which is already showing signs of slowing, analysts said. Both business and consumer confidence declined for a second consecutive month in July, recent reports showed. Car sales fell 19 percent in July from a year earlier. Manufacturers' production declined in June, while the construction industry reported lower orders in the same month.
The 9.5 percent unemployment rate in Germany, which accounts for a third of the euro region's gross domestic product, is still more than twice as high as the level in the U.S. German Chancellor Gerhard Schroeder's main aim is to reduce joblessness.
The ECB, however, has to balance the need to sustain growth in Germany against spiraling inflation in countries such as Ireland, Spain and the Netherlands. Ireland's inflation rate is the highest in the euro region, at 5.9 percent. The euro zone's average inflation rate reached 2.4 percent in July, staying above the ECB's 2 percent limit for a second consecutive month.
Consumer Prices
Even in Germany, ``costs will remain very high,'' said Axel Angermann, an economist at the VCI chemicals association, which represents 1,500 companies.
While another German release today showed prices paid by consumers declined 0.1 percent in the four weeks to mid-August, analysts predicted a rebound in coming months, as rising import prices feed through to the rest of the economy.
Already factories are passing their higher costs on to customers. Producer prices, which include goods such as energy, rubber and machinery, rose at the fastest pace in nine years in July, the government said yesterday.
Germany's headline inflation rate, based on annual growth in consumer prices, declined to 1.8 percent in the four weeks to mid- August from 2 percent in the previous month, though it's ``reasonable to assume that the rate will move back toward 2 percent in September,'' according to Alison Cottrell, an economist at PaineWebber International.
Import Prices
German import Prices rose 0.4 in July from June, twice the gain predicted by analysts, and climbed 10.9 percent from July 1999. Excluding oil products, the index rose 0.5 percent in the month and 6.6 percent in the year, the government said today.
Factories increased prices at the fastest pace in nine years in July, passing on higher raw material and oil costs to customers, a report yesterday showed.
Oil costs have almost tripled in the last 18 months, adding to pressure on prices caused by the euro's decline. Degussa-Huels AG, the world's second-biggest maker of pigment blacks, used to make ink and rubber, the German unit of Ford Motor Co., the world's second-biggest carmaker, and other manufacturers are raising prices to finance their higher costs.
The Organization of Petroleum Exporting Countries agreed in June to raise output by 500,000 barrels a day if the price of oil tops $28 for 20 consecutive trading days. OPEC officials will meet on Sept. 10 to decide whether to raise output. A barrel of Brent crude today cost $30.35. |
