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Slower growth in energy costs helped curb annual price rises at factory gates in the eurozone in February, data showed on Tuesday, but economists said the recent rise in oil prices meant that trend might reverse.
The European Union's statistics office said industrial producer prices (PPI) grew by 0.3 percent month-on-month and 2.9 percent year-on-year. Economists polled by Reuters had expected the same monthly gain and a 2.8 percent annual increase.
Eurostat said that without the construction and energy components, a reading economists call core producer price inflation, the index rose 0.3 percent month-on-month and 3.4 percent year-on-year.
Producer prices are an early indication of inflationary pressure because their increases, unless absorbed by retailers via lower margins, eventually translate into higher costs for consumers.
The European Central Bank wants to keep annual inflation just below 2 percent. Even though consumer prices have been in line with that target since September 2006, markets expect the ECB to raise interest rates at least once more this year, to 4.0 percent in June from the current 3.75 percent.
"The situation is not of a direct inflationary risk, but it's not low enough to say OK, that's it," said Astrid Schilo, economist at HSBC. "Energy prices are picking up again, the economy is in much better shape, and obviously the ECB is afraid this could show up in core prices as well," she said. After a fall to around $50 a barrel in January, crude oil prices have moved sharply back up to about $68.
The ECB wants to stem medium-term inflationary pressures from fast credit growth and a tightening labour market as unemployment in the 13 countries using the euro fell to a record low of 7.3 percent in February.
While annual growth in consumer prices rose to 1.9 percent in March from 1.8 percent in February, economists said the steady increase in some components of producer prices could draw the attention of the bank.
Durable consumer goods, a PPI component with a clear link to prices in stores, rose 0.4 percent month-on-month and 2.0 percent year-on-year, data showed, up from 1.9 percent annually in January and 1.7 percent in December. Capital goods prices rose 2.1 percent in February in annual terms after gains of 2.0 percent in January and 1.8 percent in December.
Energy together with intermediate goods and durable consumer goods were among the main reasons behind the monthly rise in the index as they each gained 0.4 percent versus January.

Copyright Reuters, 2007

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