May HICP flash: +1.6% y/y

MNI survey median: +1.7% y/y
MNI survey range: +1.6% to +1.7% y/y

Previous: Apr +1.5%, Mar +1.4%, Feb +0.9%, Jan +1.0%, Dec +0.9%

—

FRANKFURT (MNI) – Eurozone May consumer prices rose at their
strongest annual pace in nearly eighteen months, though by less than
generally expected, according to Eurostat’s preliminary estimates
published on Monday.

On the year, inflation came to 1.6%, its highest level since
December 2008. Although some analysts polled had expected such a figure,
a majority had forecast a marginally stronger inflation rate.

A detailed breakdown of the consumer price index will not be made
available until June 16. However, preliminary estimates out of both
Germany and Spain showed the upward effect of costlier food prices more
than offsetting cheaper packaged holiday tours.

Energy continued to boost prices in Germany, although some states
showed a deceleration in energy inflation.

Since early May, crude prices in dollars have fallen some 20% amid
the Eurozone sovereign debt crisis. This should largely offset the
impact on imported oil prices of the slide in the euro-dollar since the
start of the year.

The recent downward revision by the International Energy Agency
(IEA) for expected oil demand this year, combined with the upward
revisions for non-OPEC supply suggest that oil prices could remain under
pressure for some time.

However, the weaker euro, combined with growing demand, boosted
import prices for other commodities. While input prices continued
trending upwards in May, firms reported a reduction in prices charged,
according the Markit Economics’ latest purchasing managers index (PMI)
survey.

A growing majority of firms polled by the European Commission in
May continue to see selling prices trending upwards in the near term,
with only the construction sector bucking the trend. Consumers also
expect prices to rise in the short-run, though the proportion remains
well below the historical average.

The Organisation for Economic Cooperation and Development (OECD)
last week revised up its forecasts for Eurozone inflation and now
expects consumer prices to rise 1.4% this year before slowing to a
growth rate of +1.0% in 2011.

Professional forecasters surveyed in April by the European Central
Bank also revised up their expectations and project inflation at +1.4%
in 2010 and an acceleration to +1.5% next year and to +1.7% in 2012.

“In the near term, given the developments in energy prices, risks
to earlier projections for HICP inflation are tilted somewhat towards
the upside, while risks to price stability over the medium term are
viewed as still remaining broadly balanced,” the ECB said in its monthly
bulletin.

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

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