German CPI data suggests only small eurozone cut

Germany on Wednesday revised a key measure of July inflation higher, prompting analysts to suggest that progress in taming eurozone price pressures may be slower than expected.
Federal Statistics Office data showed that the European Union harmonised annual inflation rate, boosted by surging oil and health costs, rose 0.4 percent on the month for an annual increase of 2.0 percent.
It originally reported prices rose by 0.2 percent from the previous month and by 1.8 percent from July 2003.
In June, the harmonised index was unchanged from the previous month and advanced 1.9 percent from a year earlier.
Economists said the data suggested that preliminary figures showing eurozone inflation of 2.4 percent for July, well above the European Central Bank's 2.0 percent ceiling, may be revised down by less than previously expected.
"We remain confident that there will be a downward revision," said Sandra Petcov, an economist at Lehman Brothers in London.
"It now seems increasingly likely that this will be of only a tenth of a percentage point to 2.3 percent," she added. "The last key missing piece in the jigsaw is Friday's French inflation data."
Barclays Capital economist Nick Matthews also said he expected Eurostat to revise July eurozone CPI down to 2.3 percent.
Thomas Hueck, an economist at HVB Group in Munich, said oil was the main "pressure factor" in July's German prices index and that the increase in oil costs was feeding through into other energy prices such as gas.
"The increase during the first half is having a lagged impact in other areas," Hueck said. "That effect won't dissipate very rapidly."
Germany's national index of consumer prices for July was confirmed on Wednesday as increasing 0.3 percent month-on-month and 1.8 percent year-on-year.
In June, German consumer prices were unchanged from the previous month and rose by 1.7 percent year-on-year.
A breakdown of the national index showed that fuel prices jumped 1.8 percent from the previous month and by 8.2 percent from July 2003.
The Statistics Office said that excluding fuels and heating oil, prices advanced 0.2 percent month-on-month and 1.5 percent year-on-year.
Health costs also boosted July's annual inflation rate, as government reforms that took effect at the beginning of the month lifted the annual gain to 20.4 percent, the Office said. From the previous month, health costs rose 0.9 percent. Joerg Kraemer, chief strategist at Invesco Asset Management in Frankfurt, said without the healthcare reforms and other state-controlled factors such as tobacco prices inflation would be about one percentage point lower.