March HICP flash: +1.5% y/y

MNI survey median: +1.1% y/y
MNI survey range: +1.0% to +1.4% y/y

Previous: Feb +0.9%, Jan +1.0%, Dec +0.9%, Nov +0.5%, Oct -0.1%

FRANKFURT (MNI) – Annual consumer price inflation in the Eurozone
accelerated more than expected in March to 1.5%, reaching its highest
level since December 2008, according to preliminary estimates released
by Eurostat on Wednesday.

The figure was above the upper end of the forecast range in a
survey of analysts conducted by Market News International. However, it
should be noted that forecasts were provided late last week and, as a
result, did not take into account the upside surprises reported in
Germany’s consumer price figures on Monday and Spain’s strong figure
published Tuesday.

A detailed breakdown will not be available until April 16. However,
inflation data out of various German states highlighted the strong
upward effect of energy prices on the overall figure.

Depending on the state in question, motor fuel costs rose between
3.8% and 7.7% on the month, while heating oil prices jumped as high as
8.8% in some areas.

On the year, the gain was even more pronounced, with heating oil
and motor fuel prices soaring to 35.1% and 21.1% respectively.

Spain’s preliminary CPI report also highlighted the boost in fuel
prices, which helped to lift annual inflation to its highest level since
December 2008.

With oil prices having reached a trough in early 2009, the
commodity’s upward effect on annual import prices will likely diminish,
as the difference between oil prices now and one year ago narrows.

Further downward pressure on headline inflation is likely to come
from ongoing price cuts, as firms seek to remain competitive.

The bulk of companies polled by the European Commission continue to
see selling prices trending below normal in the near term.

Firms cited in the most recent purchasing managers index (PMI) also
highlighted further cuts in prices charged. However, the decline was the
shallowest noted since prices first started falling in November 2008,
and manufacturers reported no change to selling prices for the month.

Nevertheless, with households downwardly revising the outlook for
their financial situation and jobless fears still well above the
long-term average, according to the Commission, companies may find
little leeway to hike prices.

Those same jobless fears have forced unions to shift their focus to
job protection rather than wage hikes during labour negotiations, as
evidenced by the fact that Germany’s largest union, IG Metall, settled
for only a moderate pay rise this year.

Forecasts from the French national statistics office, Insee,
suggested an absence of inflationary pressures in the Eurozone and
pointed to consumer price growth stabilizing at +1.0% this year.

Insee’s figures are below those published in the recent European
Central Bank staff projections, which forecast inflation ranging between
+0.9% and +1.7% in 2010, as well as those of the European Commission,
which forecast inflation at +1.1%.

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

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