Situation

  • On a monthly basis Producer prices rose by 0.34% (0.43% in Apr’07)
  • On an annual basis Producer prices rose by 2.36% p.a ( 2.37% p.a in Apr’07)

Background

  1. Oil prices have risen by 6.29% on an average in Jun’07 (over May’07). This cause Core CPI ( ex Energy) to start rising.
  2. The European Commercial bank ( ECB) aims at inflation ( CPI ) rates of below, but close to, 2% over the medium term. The ECB in its meeting on Jun’07 further raised the bank rate by 0.25 basis points to 4.00%.
  3. European GDP has been expanding in Q1 2007
  4. The ECB has a monetary Policy meeting on July 5th 2007

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Conclusion

  • A slight rise in PPI towards 2.50% p.a towards Sept’07 can be expected thanks to the rise in energy  prices in recent times.
  • The effect of the rate hikes should push PPI down to the ECB target areas of 2.00% p.a to 1.50% p.a post Sept’07

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