20000127

German prices jump but ECB calm on inflation

FRANKFURT: German import price inflation, seen as an indicator of future consumer price increases, rose to its highest level in 15 years in December but European Central Bank officials played down inflation risks in the euro area.

Import prices were up 8.2 percent year-on-year and 1.6 percent month-on-month, driven by a surge in oil prices which is generally expected to abate this year.

The figures followed news on Tuesday that German consumer inflation hit a two-year high of 1.7 percent in January.

But economists said price cuts in the telecommunications and energy sectors in the wake of deregulation would help cap inflation.

Expectations for an ECB rate increase in the first quarter focused more on recent signs of strengthening economic growth than on inflation trends, they said.

Data released on Wednesday showed harmonised consumer prices in the euro zone rose 1.7 percent year-on-year in December versus November's 1.5 percent.

"Economic growth is relatively robust," said Holger Fahrinkrug, an economist at Warburg Dillon Read. "Against that background the current refinancing rate of three percent looks very, very generous."

ECB Chief Economist Otmar Issing, in a newspaper interview conducted last week and released on Wednesday, reiterated the ECB expected inflation to ebb after an initial rise in early 2000.

"After a jump we should see lower price growth rates again," Issing told Die Woche newspaper in an interview to be published on Thursday.

He added that wage rises this year were key to the inflation outlook and warned the temporary rise in price pressures must not serve as a guide to wage demands which could provoke a wage-price spiral.

Guy Quaden, governor of the National Bank of Belgium and a member of the ECB's council, told Reuters the ECB was not yet worried about wage developments in the euro zone.

The inflation data this week coincided with tentative signs of wage moderation in Europe's largest economy.

German Banking workers accepted a three percent wage rise for 2000, largely unchanged from 1999 and construction union IG Bau demanded 4.8 percent, short of engineering union IG Metall's 5.5 percent claim.

The German import price increase was driven by surges of 164.1 percent in crude oil import prices and 138.9 percent in oil products, among which gasoline was up 159.6 percent, the Statistics Office said.

The data initially weighed on European government bond futures as it reinforced expecations of an interest rate rise by the European Central Bank by the end of March.

The March Bund future fell a quarter point in early trade but recovered to trade up 0.03 at 103.11 at 1035 GMT.-Reuters