August HICP: +1.6% y/y

Previous: Jul +1.7%, Jun +1.4%, May +1.6%, Apr +1.5%, Mar +1.4%
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FRANKFURT (MNI) – Eurozone monthly consumer prices picked up much
as expected in August after a dip in July, boosted by costlier clothing
and leisure, dampening the annual inflation rate slightly, Eurostat
reported on Wednesday.

On the month, the consumer price index rebounded 0.2% as generally
expected after July’s 0.3% decline, to give annual inflation an increase
of 1.6%, in line with the flash estimate.

Annual core inflation, which excludes energy (+6.1% y/y), and food,
alcohol and tobacco prices (+1.5% y/y), came to +1.0%, unchanged from
July’s yearly rate. The European Central Bank’s preferred measure of
core price growth, which factors out the effects of both energy and
unprocessed food costs, also came to +1.0% on the year.

Garment prices had the heaviest impact on the monthly change in
overall prices, adding 0.09 percentage point to inflation and helping to
lift clothing prices by 1.8% on the month.

Package holiday and air transport prices also impacted CPI growth,
contributing 0.03 percentage point each.

Energy prices continued to register the strongest annual growth
rate among major HICP components in August, boosted by transport fuels,
which rose 8.5% and added 0.31 percentage point to the overall inflation
figure, as well as heating oil, which gained 18.2% on the year and
contributed 0.13 percentage point.

Among Eurozone states for which there is data, the strongest annual
rates were noted in Greece (+5.6%) and Cyprus (+3.4%). By contrast,
Ireland (-1.2%) was the only country to see an overall decline in HICP
on the year.

The most recent purchasing managers index (PMI) polls suggest that
input prices in industry slowed in August, while those in the services
accelerated. Looking further down the pipeline, the PMI reported that
factory-gate prices rose at their slowest pace in five months and
service charges fell further, .

Results of the European Commission’s latest survey mirrored the PMI
release, with the proportion of manufacturers foreseeing selling prices
to trend upward falling to just above average and the bulk of service
providers expecting an upward price trend still below the norm.

In the retail and construction sectors as well, firms cut back
their price expectations in August. Consumers’ expectations of price
trends remained well below the series average.

Owing largely to commodity price trends, the ECB staff revised
slightly upwards its HICP projections for 2010 to between 1.5% and 1.7%
(mid-point +1.6%), 0.1 percentage point lower than the European
Commission’s most recent interim forecast.

Looking to next year, the ECB staff projections see inflation
remaining “moderate overall” between +1.2% and +2.2% (mid-point +1.7%).

“Inflation expectations over the medium to longer term continue to
be firmly anchored in line with the Governing Councils aim of keeping
inflation rates below, but close to, 2% over the medium term,” ECB
President Jean-Claude Trichet said earlier this month.

While the outlook for price trends “are slightly tilted to the
upside”, domestic price and cost development risks “are contained,”
Trichet added.

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

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