European Consumer Prices Decline Less Than Forecast
European consumer prices dropped less than economists forecast in August as the economy recovered from the deepest slump in six decades.
Prices in the 16-member euro region fell 0.2 percent from the year-earlier month after declining a record 0.7 percent in July, the European Union statistics office in Luxembourg said today. Economists predicted a 0.3 percent decrease, according to the median of 36 estimates in a Bloomberg News survey.
Inflation may accelerate as the global economy emerges from the worst recession since World War II, stoking demand and driving up the cost of crude oil and other commodities. The European Central Bank has warned that the recovery may face obstacles as rising unemployment curbs consumer spending and helps keep a lid on prices.
“It’s certainly a shorter period of negative inflation rates than most people thought and could be over next month,” said Nick Kounis, chief European economist at Fortis Bank NV in Amsterdam. “This latest piece of data puts the final nail in the coffin of the idea that the ECB will do more. At the same time, they don’t really have to worry about inflation pressures until 2011 or 2012.”
Consumer prices in Italy, the euro region’s third-largest economy, unexpectedly increased 0.2 percent in August from a year earlier, the Italian Statistics Institute in Rome said today. Economists forecast a 0.1 percent drop, according to the median forecast of 15 projections in a Bloomberg survey. Italian retail sales unexpectedly fell 0.4 percent in June from May, according to a separate report.
Increased Discounting
Germany’s Puma AG, the second-largest sporting-goods maker in Europe, on Aug. 7 reported a 16 percent drop in quarterly profit because of increased discounting. Unilever, the world’s second-biggest consumer-goods company, will distribute 50 million discount coupons in Germany to lure shoppers, following the example of Nivea skin-cream maker Beiersdorf AG, which offered consumers a three-euro ($4.28) rebate last month.
Consumers in Europe anticipate prices will decline more steeply in the next year than they did in July, while companies’ projections are less negative than a month ago, a European Commission report showed on Aug. 28. A gauge of consumers’ price expectations over the next 12 months fell to minus 16, the lowest since the data were first compiled in 1990.
While oil prices are down about 40 percent from this time last year, they have more than doubled from a February low of $34 a barrel. In Germany, Europe’s largest economy, energy prices increased in August from July and helped to boost the annual inflation rate, which unexpectedly rose to zero.
Stimulus Spending
Evidence is increasing that the worst of the global recession is passed. In India, Asia’s third-largest economy, economic growth accelerated in the second quarter for the first time since 2007, data showed today. India joins China, Japan and Indonesia in rebounding as Asian economies benefit from $950 billion of stimulus spending and lower borrowing costs.
The euro-area economy contracted 0.1 percent in the second quarter after shrinking 2.5 percent in the previous three months, while Germany and France returned to growth. European economic confidence jumped twice as much as economists forecast this month, with the European Commission’s index of executive and consumer sentiment rising to the highest since October.
Even as the economy recovers, rising unemployment may restrain consumer spending. The euro-area jobless rate increased to 9.4 percent in June, the highest in a decade, and may reach 11.5 percent next year, according to EU forecasts. Retail sales fell for a 15th month in August, the Bloomberg purchasing managers’ index showed.
Steady Course
“A weak labor market will prevent companies from raising prices too much, so subdued inflation will prompt the ECB to hold a steady course for now,” said Nick Matthews, an economist at Royal Bank of Scotland Group Plc in London.
The ECB, which aims to keep inflation just under 2 percent, has cut its benchmark rate to a record low of 1 percent and started buying covered bonds to stimulate lending. The bank will publish a new set of quarterly growth and inflation forecasts at its next rate meeting on Sept. 3 in Frankfurt.
“It looks ever more likely that the ECB’s key interest rate has bottomed out at 1%; however, any tightening of monetary policy by the ECB still looks highly improbable until well into 2010,” said Howard Archer, an economist at IHS Global Insight in London, “Underlying inflationary pressures are still very weak and there remains a very serious risk that euro-zone economic recovery could falter.”
European stocks were on speculation the market’s six-month rally has outpaced prospects for earnings growth. The Dow Jones Stoxx 600 Index down 0.5 percent at 236.24 at 2:46 p.m. in London. The euro traded at $1.4289, down 0.1 percent on the day.
The inflation report released today is an estimate. The statistics office will publish a detailed breakdown of the consumer-price data, including energy-price inflation as well as the core rate, on Sept. 16.