HICP Y/Y: Dec: +2.2%, Nov: +1.9%, Oct: +1.9% Sep: +1.8%

FRANKFURT (MNI) – Eurozone consumer prices rose 0.6% in December on
the back of costlier fuel, food and package holidays, boosting the
annual inflation rate to 2.2%, the highest level in over two years,
Eurostat report Friday, confirming its initial estimate.

In line with a 7.4% rise in oil prices in the month since November,
energy price inflation accelerated to +2.3 m/m for a 11% annual rise.
Food, alcohol and tobacco prices also increased in December, rising 0.4%
on the month and 2.1% on the year.

Excluding the above components of the price index, core inflation
remained stable at +1.1% y/y.

The European Central Bank’s preferred measure of core inflation,
which factors out energy and unprocessed foods, also came to +1.1% on
the year, in line with both November’s and October’s figures.

With households taking advantage of the Christmas season, costlier
package holidays had among the strongest upward impacts on overall
consumer price levels, rising 13.5% on the month and adding 0.18
percentage points to CPI.

Transport fuel prices also showed notable movement, rising 3.7% m/m
and adding 0.15 and 0.58 percentage points to the monthly and yearly
inflation figure, respectively. As a direct result, transport costs
increased 1.4% between November and December, and were up 5.2% on the
year.

On an annual basis, prices accelerated across the monetary union.
On a national level, the strongest annual inflation figure was in Greece
(+5.2%), followed by Malta (+4.0%) and Luxembourg (+3.1%).

Firms polled in the latest purchasing managers index (PMI) said
rising commodity and energy costs drove up input prices at the fastest
pace (62.0) since August 2008. As only part of the higher costs were
passed onto clients, the rise in prices at the factory gate (52.4) was
well below that of input cost inflation.

Recent events point to further upward pressure on inflation in the
near term from commodity price trends.

Oil prices have steadily increased each month on average since
July, recently hitting a 27-month high, while flooding in Australia
lifted coal prices this week to their highest in two years.

The Food and Agriculture Organisation (FAO)’s food price index hit
a record high this month due in large part to 30-year highs in sugar
prices, as well as other food commodities. Corn and soybean prices
reached 30-month highs after the U.S. government cut its stock forecasts
for key crops on Wednesday.

Firms’ selling price expectations increased to multi-year highs in
December, with only construction companies seeing price developments
below the norm, the European Commission reported. Consumers’ assessment
of the one-year price outlook also remained below average, although it
was revised up to its highest point since late 2008.

European Central Bank President Jean-Claude Trichet, in his press
conference on Thursday, highlighted the upside price pressures stemming
from energy, but stressed that they were “short-term” and that “this has
not so far affected our assessment that price developments will remain
in line with price stability over the policy-relevant horizon.”

“Our monetary analysis indicates that inflationary pressures over
the medium term should remain contained,” Trichet continued. “Overall,
we expect price stability to be maintained over the medium term, thereby
supporting the purchasing power of euro area households. Inflation
expectations remain firmly anchored in line with our aim of keeping
inflation rates below, but close to, 2% over the medium term.”

However, Trichet did warn that risks to price stability, while
“broadly balanced,” could “move to the upside.”

The most recent ECB staff projections forecast inflation in the
Eurozone ranging between 1.3% and 2.3% for this year and between 0.7%
and 2.3% for 2012.

— Frankfurt bureau: +49 69 720 142; email: frankfurt@marketnews.com —

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