January flash: +2.7% y/y

MNI survey median: +2.7% y/y
MNI survey range: +2.4% to +3.0% y/y

December final: +2.7% y/y

FRANKFURT (MNI) – Much as expected, annual consumer price
inflation in the Eurozone remained steady at 2.7% in January, Eurostat
estimated Wednesday.

The annual rate suggests that prices fell back 0.8% on the month
after a 0.3% increase in December. An official breakdown of key
inflation drivers will be released on February 29.

German state data showed a marked drop in tourism prices in January
after the holiday period that was only partly offset by costlier energy
and food.

Oil prices have risen on the back of the Iran crisis and the
troubles in Nigeria, driving up energy costs for consumers. Indeed,
geo-political factors appear to be the main upside risk to prices, which
could keep Eurozone inflation elevated for longer than previously
expected.

The International Monetary Fund warned earlier this month that
should Iran stop exporting without compensation from other sources, this
could lead to an “initial” oil price jump of 20% to 30%.

In the absence of renewed commodity price pressures, inflation
should ease in the months ahead owing to favourable base effects and
slowing economic activity. This would be in line with the European
Central Bank’s expectations of annual inflation falling to target levels
over the course of this year.

ECB President Mario Draghi has said that “cost, wage and price
pressure in the euro area should remain modest and inflation rates
should develop in line with price stability over the policy-relevant
horizon.” The ECB staff’s latest projections point to annual Eurozone
inflation between +1.5% and +2.5% on average in 2012.

For the near term, leading indicators give mixed signals. January’s
Eurozone flash composite PMI showed output prices stagnating (49.6) for
the fifth month in a row. The European Commission’s latest business
survey, on the other hand, showed selling-price expectations recovering
somewhat in all sectors.

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

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