April HICP flash: +1.5% y/y

MNI survey median: +1.5% y/y
MNI survey range: +1.4% to +1.6% y/y

Previous: Mar +1.4%, Feb +0.9%, Jan +1.0%, Dec +0.9%, Nov +0.5%

—

FRANKFURT (MNI) – April consumer prices in the Eurozone rose at
their fastest annual pace since December 2008, matching general
expectations, Eurostat reported on Friday, citing preliminary estimates.

According to flash estimates, inflation came to +1.5%. While
inflation in Germany had surprised to the downside this month, strong
figures out of Spain compensated.

While a detailed breakdown of HICP will not be made available
before May 18, reports out of various German states highlighted the
downward effect of package holiday prices. Likely due to the timing of
Easter holidays this year, package holiday costs slipped as much as 12%
compared to April 2009, depending on the state in question.

Partially offsetting the drop in the overall CPI were household
energy and transport prices, which were lifted by costlier heating oil
and motor fuel, respectively.

Preliminary estimates for Spain also highlighted the fall in
package holiday prices. However, negating these were energy costs, which
helped to lift the overall price index to its highest level since
November 2008.

While oil prices reached a trough in early 2009, suggesting that
the boost from energy on the annual import price figure would soon fade,
recent gains in oil prices have delayed this effect.

Compared to the same month last year, average Brent crude prices in
April came to $84.68, reflecting a 68.78% rise on the year. Average
prices in March were up 68.73% compared to one year ago.

Firms cited in April’s purchasing managers index (PMI) reported the
highest input price inflation level since July 2008, due to the weak
euro boosting the cost of U.S. dollar denominated inputs.

Conversely, prices charged in the private sector continued to fall.
However, the price decline from service providers was partially offset
by the first rise in manufacturers’ charges in more than a year and a
half.

The European Commission report on economic sentiment echoed those
of the PMI, with selling expectations rising across the board. The most
notable gain was in the industrial sector, where a majority of firms now
expect prices to trend upwards in the near future, matching the
long-term average.

Households also revised up their assessment of price trends over
the next year. However, the figure remains well below the series
average, the Commission added.

Earlier this month, the French national statistics office, along
with the leading institutes in Germany and Italy, forecast that Eurozone
inflation would increase to 1.6% in June and remain at that level
through 3Q.

However, as the projections are based on oil prices stabilizing at
$77 and the euro remaining at $1.37 over the forecast period, risks to
the forecasts lie to the upside. Brent crude is currently priced at
$86.97, while the euro is trading at $1.3292.

For 2010 as a whole, the European Commission confirmed its initial
forecast of +1.1% inflation for the Eurozone, while the latest European
Central Bank’s staff projections suggest inflation ranging between +0.8%
and +1.6% this year and between +0.9% and +2.1% in 2011.

“We expect inflation in the euro area to remain moderate over the
policy-relevant horizon,” ECB Executive Board member Juergen Stark said
earlier this week.

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

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