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German Import-Price Inflation Accelerates to Fastest in More Than 29 Years

Thursday, Jan 27, 2011

German import prices rose at the fastest annual pace in more than 29 years in December, driven by soaring costs for commodities such as energy and metal.

Import-price inflation accelerated to 12 percent, the highest rate since October 1981, from 10 percent in November, the Federal Statistics Office in Wiesbaden said in an e-mailed statement today. Economists predicted the rate would rise to 10.8 percent, according to the median of 12 estimates in a Bloomberg News survey. In the month, prices increased 2.3 percent, almost double the 1.2 percent forecast by economists.

Germany’s booming economy and rising commodity prices are fueling euro-area inflation, creating a dilemma for the European Central Bank. While the ECB has toughened its inflation-fighting rhetoric, it is also battling a debt crisis that’s damping growth in peripheral nations in the currency bloc.

“The pressure in the inflation pipeline has just risen again,” said Andreas Rees, chief Germany economist at UniCredit in Munich. “We will see a rise in inflation through the first quarter, and that’s something we have to keep a very close eye on.”

Energy was 34.2 percent more expensive in December than a year earlier, the statistics office said. Iron ore prices soared 98.4 percent, while non-iron ore metals cost 37.9 percent more.

Record PMI Prices

A survey of purchasing managers published by Markit this week showed that input-price inflation in Germany’s manufacturing sector reached the fastest pace on record in January since the PMI began in April 1996.

“Anecdotal evidence suggested that strong growth of purchasing activity and corresponding shortages of stock at vendors had pushed up the price of inputs,” Markit said.

German consumer-price inflation accelerated to 1.9 percent last month, pushing the euro-area rate to 2.2 percent, the first time it has breached the ECB’s 2 percent limit in more than two years. The Frankfurt-based ECB has held its benchmark interest rate at a record low of 1 percent since May 2009.

With Europe’s debt crisis showing no signs of abating, ECB council member Ewald Nowotny said yesterday that policy makers won’t consider raising borrowing costs in the first half of this year.

Fellow council member Jozef Makuch said today that faster inflation is “temporary.” The rate is likely to fall back into line with the ECB’s medium-term goal in the second half of the year, he said.

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