Situation
- On a monthly basis prices rose by 0.63 % (0.67 % in Mar’07)
- On an annual basis prices rose by 1.91 % p.a ( 1.94% p.a in Mar’07)
Core inflation stands at 2.08% p.a ( was 1.96% in Mar’07)
Background
- Growth in producer prices have been dropping since May’06 and prices in Mar’07 rose at its slowest pace since Jul’04
- While production growth has been sustained New Orders growth has been declining since the interest rate hike in Dec’06
- The European Commercial Bank (ECB) had raised its interest rates from 3.25% to 3.75%, in Dec’06 (25 basis points), and in Marc’07 (25 basis points).
- The European Commercial bank ( ECB) aims at inflation ( CPI ) rates of below, but close to, 2% over the medium term. They have achieved this primary goal. Inflation growth has been on a downward trend since Jun’06
- However core inflation ( inflation excluding energy prices ) at 2.08% p.a has been a worrying factor ( click on image for a larger visual). It has been on a rising trend since Mar’06.
- Core inflation growth is at its highest levels since Jun’04
- As on May 16 ‘07 crude is averaging at 62.59 for the month. ( 2.2% less than Apr’07)
- Members of the ECB have suggested that they may consider raising interest rates in June’07
Conclusion
( click on images for a better visual)
Inflation looks like ranging below 2.00% towards 1.5% in coming 1-3 months
However given the fact that core inflation has had no drop ( and is on a rising trend) it does look likely that the ECB would raise interest rates in Jun’07
Related links
- Euro area - Inflation (CPI) flat in Mar’07
- USA - Inflation rate (CPI) drops marginally in Apr’07
- UK Inflation (CPI) drops in Apr’07
- Japan - Inflation indices ( CPI ) deflate in Mar’07
- India - marginal drop in inflation ( CPI )