November HICP flash: +1.9% y/y

MNI survey median: +1.9% y/y
MNI survey range: +1.7% to +2.0% y/y

Previous: Oct +1.9%, Sep +1.8%, Aug +1.6%, Jul +1.7%, Jun +1.4%
—

FRANKFURT (MNI) – Eurozone annual inflation remained stable at
+1.9% in November, as generally expected, Eurostat estimated Tuesday.

A detailed breakdown will not be made available until December 16.
However, data from Germany and Spain highlighted the ongoing upward
pressure from energy, including motor fuels. Food prices also helped
underpin CPI gains once again, according to reports out of various
German states.

Due to base effects, commodity prices should maintain upward
pressure on annual inflation rates despite the recent decline for a
number of products.

Domestic prices pressures, by contrast, are likely to remain
subdued, given high employment and remaining overcapacity in industry.

Looking ahead, recent forecasts suggest that inflation will remain
moderate over the next two years.

In its autumn forecasts, the European Commission projected consumer
price inflation at +1.5% on average this year, accelerating to +1.8% in
2011. Inflation would then ease slightly to +1.7% in 2012.

Professional forecasters surveyed by the ECB last month also
expected inflation to average +1.5% this year, below the central bank’s
price stability target level of less than but close to 2%. They saw it
remaining at that level in 2011. At the five-year horizon, median
inflation forecasts pointed to a rate of +1.9%.

The ECB staff’s own projections on inflation, published in
September, yielded a range of 1.5% to 1.7% for 2010 and 1.2% to 2.2% for
2011.

Trichet said earlier this month that inflation expectations “remain
firmly anchored.” However, he warned that risks to price developments,
relating especially to commodity prices, “are slightly tilted to the
upside,” suggesting that ECB staff inflation projections could be
revised upwards in December.

Markit Economics’ latest purchasing managers index (PMI)
highlighted stronger input price inflation in both the manufacturing and
services sectors, lifting the sub-index to 59.9 in November. Costlier
commodities resulted in an especially sharp gain in manufacturing input
prices, Markit noted.

PMI output prices, however, picked up only marginally to 51.0,
reflecting firms’ limited pricing power.

Sales price expectations in November were above long-term averages
in all main sectors except construction, despite a modest erosion in the
services, according to the Commission’s monthly survey. In manufacturing
and retail, they rose to 26-month and 32-month highs, respectively.

Consumers’ price outlook for the next 12 months also gained ground
in November, partially undoing the decline over the previous two months.
However, expectations remained well below the norm.

— Frankfurt bureau: +49 69 720 142; e-mail: frankfurt@marketnews.com —

[TOPICS: M$X$$$,MT$$$$,M$XDS$]