German producer price change doubles to set path to consumer inflation breaking ECB target
Producer price inflation in Germany more than doubled in January as inflationary pressure continues to build in the Eurozone’s largest economy.
Factory gate prices rose by 2.4 per cent year-on-year, according to flash estimates by the German Federal Statistics Authority, the fastest pace of inflation for manufacturers since March 2012.
German producer prices were falling by three per cent as recently as February 2016, but since then inflationary pressure has built steadily.
Read more: Hold: The ECB keeps interest rates and QE purchases steady
At the end of 2016 a rapid rise in prices for Germany’s manufacturers was spurred by higher oil prices, which were boosted at the end of November by a deal by the Organisation of the Petroleum Exporting Countries (Opec) to cut production.
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The surge in prices for manufacturers will feed expectations of a pass-through to higher consumer price inflation, and raise pressure on the European Central Bank (ECB) to slow the supply of money to the economy.
German consumer prices rose by 1.9 per cent in January, just below the ECB’s two per cent target rate. However, the ECB is publicly determined to maintain ultra-loose monetary policy until it sees a sustainable rise in core inflation and growth, not taking into account the effects of volatile fuel prices.
German economists, including the president of the German Bundesbank, Jens Weidmann, have been outspoken in their criticisms of the effect the ECB’s policy has had on savers.
The massive quantitative easing purchases of bonds have sustained prices on government notes, lowering the yields available to pension funds.