July HICP flash: +1.7% y/y

MNI survey median: +1.7% y/y
MNI survey range: +1.6% to +1.9% y/y

Previous: Jun +1.4%, May +1.6%, Apr +1.5%, Mar +1.4%, Feb +0.9%
—

FRANKFURT (MNI) – Eurozone inflation jumped as expected in July to
1.7%, its highest annual rate in 20 months, Eurostat estimated Friday.

The acceleration was due mainly to base effects, as the HICP index
hit a trough in July 2009. This suggests that prices declined on the
month for the first time since January.

While an official monthly figure, as well as a detailed breakdown,
will not be made available until August 16, national data from Spain and
Germany highlighted the upward pressure stemming primarily from costlier
food and energy, suggesting that core inflation likely remained subdued
this month.

Pipeline price pressures appear to be receding. Firms polled for
July’s purchasing managers index (PMI) reported a further slowdown in
industry input prices (63.6) and the weakest rise in factory-gate prices
in four months (52.5). Service prices charged declined for 21st month in
a row (48.6).

Manufacturers polled by the European Commission in July revised
their sales price expectations downward for the second consecutive
month. While firms in other sectors either left their price outlook
unchanged or revised it upwards, an above-average proportion continued
to see output prices trending downwards in the short term.

The ECB expects price stability to be maintained over the
policy-relevant horizon.

“Inflation expectations remain firmly anchored in line with our aim
of keeping inflation rates below, but close to, 2% over the medium
term,” ECB President Jean-Claude Trichet said at his last press
conference.

Reflecting this assessment, M3 broad money supply grew by a modest
0.2% on the year in May, well below the ECB’s reference value of +4.5%.
Loans to the private sector also remained weak, rising only 0.3% over
the same period.

“The latest money supply and credit growth figures support the view
that Eurozone inflation pressures are likely to remain muted over the
coming two years,” said ING Wholesale Banking senior economist Martin
van Vliet.

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

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