Energy costs pushed eurozone producer prices up in July as Brent oil prices spiked, but overall inflation pressures were moderate, adding to economists' expectations the European Central Bank will keep rates on hold. Higher crude oil nudged prices up 0.5 percent in July from June at factory gates in the 17 countries using the euro, right in line with economists polled by Reuters, according to data from the EU's statistics office Eurostat on Friday.
Producer prices climbed 6.1 percent year-on-year in July rising slightly from 5.9 percent in June, Eurostat said. Brent oil rose above $115 a barrel in July after falling in late June, and industrial energy prices in the eurozone rose 1.5 percent in an otherwise muted month for producer price changes.
Stripping out volatile energy and construction costs, producer prices rose 0.1 percent month-on-month and were 4.1 percent higher than a year earlier, with a strong industrial rebound after the 2009 recession losing steam across Europe. "Energy inflation will drive producer prices in the euro area for the next two to three months," said Fabio Fois, an economist at Barclays Capital.
"After that, we see favourable base effects driving energy inflation down and this will drive headline inflation down, so this impact of energy is not going to last long," he said. Many economists see energy prices falling by the end of the year as the debt-laden economies of Europe and the United States struggle with minimal growth, sapping demand, and Libyan oil comes back onto the market after the fall of Muammar Gaddafi.
Rises in prices charged by producers, unless absorbed by intermediaries or retailers, mean higher prices for consumers and signal inflationary pressures, and are carefully watched by policymakers despite the lag in publishing the July data.
Still, the ECB, which wants to keep inflation below but near to 2 percent over the medium term, will focus on slowing growth in France and Germany in the second quarter that is dampening hopes the region's biggest economies will underpin Europe's fragile recovery. The ECB increased its benchmark rate to 1.50 percent in July from 1.25 percent but is expected to keep rates unchanged when it meets next week. Underscoring that consensus, consumer prices in the euro area fell 0.6 percent month-on-month in July and rose 2.5 percent year-on-year, Eurostat said last month. "The growth environment probably will decline a bit more than what the ECB is going to forecast," said Raphael Brun-Aguerre at J.P. Morgan. "We forecast an inflation number that quickly goes down to 2 percent in January, February and then for the rest of the year goes down to as low as 1.5 percent," he said.