EURO ZONE output price inflation has seen the biggest jump in almost a decade as record manufacturing growth and soaring business confidence in Germany power an economic rebound across the region, according to surveys.
Prices charged by companies for goods and services rose this month at the fastest rate since July 2008, according to euro zone purchasing managers’ indices. The monthly acceleration in output price inflation was the biggest since the series started in 2002.
The pick-up showed businesses taking increasing advantage of robust economic growth to pass higher fuel and raw material costs on to customers.
It will heighten concern at the European Central Bank (ECB) that the surge in consumer price inflation could become entrenched, and could encourage a tougher tone at its interest-rate setting meeting next week.
Euro zone private sector activity also accelerated sharply in February. The “composite” purchasing managers’ index, covering services and manufacturing, rose to 58.4 – the highest since July 2006. The German manufacturing index hit 62.6 – the highest since the series started in 1996. A figure above 50 indicates an expansion in activity.
Germany’s Munich-based Ifo institute said its business confidence index had risen further this month, setting a fresh record for the pan-German survey, which started in 1991, and suggesting the revival in the euro zone’s largest economy was far from fizzling out.
“The upswing in the German economy is robust,” said Hans-Werner Sinn, Ifo’s president.
The euro zone last year took economists aback with the pace at which it recovered from 2009’s global economic downturn – in spite of the debt crises which hit euro zone “peripheral” countries such as Greece, Ireland and Portugal. Severe winter weather slowed activity markedly in the fourth quarter of 2010, but yesterday’s data suggests the effect was just temporary.
Euro zone GDP could expand 0.7 in the first three months of 2011, said Chris Williamson, at Markit, which produces the purchasing managers’ indices. Germany is still leading growth, but France has also seen a bounce back. ECB policymakers have signalled they may support raising interest rates in coming months as the economy recovers and price pressures grow.
“We’re prepared to act decisively and immediately if needed,” ECB executive board member Juergen Stark said at an event in Frankfurt last night.
“The objective is pretty clear. In order not to risk unanchoring inflation expectations, we have to change the monetary policy stance if need be.” Officials must gauge whether the resulting liquidity situation “is still appropriate”, fellow executive board member Lorenzo Bini Smaghi said. – (Copyright The Financial Times Limited 2011/ Bloomberg)
