Oil drives Euro zone factory prices higher in August

Wednesday, 3 October 2012 00:03 - - {{hitsCtrl.values.hits}}

BRUSSELS (Reuters): Euro zone factory prices jumped unexpectedly in August and by the biggest margin since January as rising oil prices increased inflation pressures across the bloc, limiting the European Central Bank’s ability to cut interest rates again to support the shrinking economy.

Prices at factory gates in the 17 countries using the euro rose 0.9% in August from July, the biggest jump since the start of the year when prices rose by the same margin, the European Union’s statistics office Eurostat said on Tuesday. Seesawing world oil prices have shifted the inflation outlook several times during the year and economists in a Reuters poll had not expected the big change in monthly factory prices in August, forecasting only a 0.5% rise.

Producer price inflation on an annual basis rose was 2.7% in the euro zone, slightly above the 2.6% level expected by economists.

The European Central Bank holds its monthly meeting on Thursday but is not expected to lower rates to another record low after consumer price inflation rose unexpectedly in September.

The bank may now wait until later in 2012 to move, seeing some ground to move on a rate cut because core consumer and producer price inflation is steady when energy prices are stripped out. Energy prices for factories climbed 2.4% in August from July, the biggest rise since January.

But producer price inflation excluding construction and energy was moderate at 0.3% on a monthly basis and 1% on an annual basis.