Energy boosted euro zone producer prices as expected in March, data showed, but underlying inflationary pressures remain low, underlining expectations the European Central Bank will not raise rate until 2011.
The European Union's statistics office, Eurostat, said today that producer prices in the 16 countries using the euro rose 0.6 per cent month-on-month for a 0.9 per cent year-on-year gain.
Producer prices play an important role for rate-setters as a precursor to consumer price developments.
The ECB, which meets on interest rates on Thursday, targets consumer inflation at just below 2 per cent. "The overall picture is that the rise in producer prices was driven by energy prices," said ING economist Martin van Vliet.
"The underlying price pressure remains very subdued - excluding energy producer prices grew 0.1 per cent year-on-year which is very low. And... core CPI goods inflation is lagging behind producer prices by 12 months," he said.
"The ECB can keep rates on hold for the rest of the year and slow down the unwinding of unconventional measures," he said.
Energy prices jumped 1.7 per cent month-on-month in March for a 2.8 per cent year-on-year rise. Without the volatile energy and construction sector, producer prices rose 0.3 per cent on the month and 0.1 per cent in annual terms.
"Despite some recent improved data and survey evidence for the euro zone, the ECB is likely to retain the view that the euro zone's recovery will be bumpy and gradual, with the result that underlying inflationary pressures will stay subdued," said Howard Archer, economist at IHS Global Insight.
"We also expect the ECB to continue to tread very lightly over the coming months in withdrawing its emergency liquidity measures. The risk that the Greek crisis and contagion effects could increasingly weigh down on euro zone economic sentiment and activity reinforces the case for the ECB to keep its finger off the interest rate trigger."
Reuters