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To: Ernest K Brandt who wrote (6872)	1/31/2002 11:13:40 AM
From: Bucky Katt	Read Replies (1) \| Respond to of 48461

German consumer prices rose at the fastest pace in nine years this month, as food became more expensive and the introduction of euro notes and coins caused some retailers to round up prices. Wiesbaden, Germany, Jan. 31 (Bloomberg) The cost of living rose 0.9 percent in the month to mid- January from the previous four-week period, preliminary figures from the Federal Statistics Office showed. From a year ago, prices gained 2.1 percent compared with 1.7 percent in December. ``Prices have definitely gone up,'' said Silvia Gutknecht, an insurance worker interviewed as she was leaving a bakery on Frankfurt's Fressgass. ``It really angers me. In the bakery, for instance, rolls have become more expensive.'' At Tim's, a cafe in Berlin's government quarter, a bagel with cream cheese and smoked salmon costs 3.50 euros ($3.02). In December, it cost 6 deutsche marks ($2.65). Italian prices rose at the fastest pace in more than six years this month. European Central Bank President Wim Duisenberg has said he expects inflation to drop below the bank's 2 percent limit this year, though the path will be ``erratic.'' A preliminary inflation figure for the 12 countries that use the euro will be released at noon tomorrow. European notes fell, pushing two-year yields to near five- month highs, as the report fueled speculation the ECB won't lower interest rates again in coming months. The yield on German 3 1/2 percent notes due in 2003 rose 4 basis points to 3.92 percent. A basis point is 0.01 percentage point. Turkish Pizza Though C&A Group and other retail chains used the debut of the new cash to lower prices, some smaller shops and hotels, cafes and restaurants exploited the changeover to disguise price increases. Euro cash became legal tender for 300 million people between Lisbon and Helsinki on Jan. 1. A Turkish pizza cost 3 euros ($2.60) in a restaurant near Frankfurt's financial district compared with 5 deutsche marks ($2.21) before Jan. 1. Hans Reckers, president of the Bundesbank's branch in the state of Hesse, said the rounding may have added ``several tenths of a percentage point'' to inflation. Prices of imported vegetables from southern Europe cost more than usual in January because of cold weather in France, Italy and Spain, Germany's ZMP price monitoring agency said. Vegetable production in Italy dropped by half in December and January, pushing up prices, the agency said. Gasoline, Cigarettes ``Very cold weather toward the end of 2001 probably had a decisive effect on price developments,'' the Federal Statistics Office said in a statement. ``The euro cash changeover hasn't significantly influenced'' prices, it said, adding though that the full effect will only be known at the end of February. Food prices in Bavaria rose 3.6 percent in January and gained 7.3 percent from a year ago, the statistics office said. Germany lifted gasoline taxes by 3.6 euro cents (3.1 U.S. cents) a liter in January and increased tax on insurance to 16 percent from 15 percent. Higher taxes for cigarettes and electricity also raised the cost of living. The tax increases have driven up the January consumer price index by 0.4 percent, the Statistics Office said. European inflation, at 2.1 percent, remained above the European Central Bank's 2 percent limit for a 19th month in December. After a blip in January and February, the rate will drop to 1.5 percent or 1.6 percent during 2002, Duisenberg told French daily La Tribune last week. Interest Rates Accelerating inflation in the region using the euro may limit the European Central Bank's scope for cutting interest rates to spur growth, analysts said. The German economy, Europe's largest, last year grew at the slowest pace since 1993. ``Even if the inflation outlook remains favorable, starting the new year with high inflation rates reduces the ECB's room to lower interest rates for now,'' Commerzbank AG economists said in a note to investors. The ECB lowered interest rates four times last year. Investors' expectations for another reduction have dwindled this month amid signs Europe's economy may recover. The implied yield on the three-month Euribor contract due in March was recently at 3.36 percent, 11 basis points above the ECB's main rate. The rise in consumer prices in Germany and the 11 other countries using the euro has slowed since May. Inflation in Germany, which contributes about a third to the region's price index, will continue to ease as the recession that began last year prevents manufacturers from putting up prices, other reports suggested. Import and producer prices fell in December, damped by a drop in raw material costs. ``In the current economic situation we can't raise prices by more than a percent,'' said Wolf Meyer, chief executive officer of Leifheit AG, a maker of kitchen appliances based in Nassau, Germany. ``We expect zero economic growth in the next half year and our scope to raise prices won't change.'' And Ernie, you are welcome..