Inflation surges in France and Italy dent German confidence

15th April 2008, Comments 0 comments

Soaring consumer prices stroke fears of record of eurozone inflation

15 April 2008   

PARIS - Consumer prices have risen at rates not seen since the 1990s in France and Italy and have dented German investor confidence, figures showed Tuesday, stoking fears that record eurozone inflation has further to climb.

Annual inflation in March in the 15-nation eurozone, of which France, Italy and Germany are members, came to 3.5 percent in March, its highest level since the creation of the euro in 1999 and well beyond the European Central Bank inflation target of just under 2.0 percent.

Lehman Brothers in a commentary said the latest reports, "together with stronger-than-expected data from smaller eurozone countries ... point to a possible upward revision to the final eurozone inflation data from 3.5 to 3.6 percent in March."

Juergen Stark, an ECB board executive member, meanwhile warned at a conference in Brussels that mounting inflationary pressure, fuelled largely by food and energy prices, "is having an adverse effect on consumer confidence".

"Containing these inflationary pressures is therefore crucial," he said.

Stark also called for moderation in wage negotiations, fearing that big hikes in pay packages could fuel an inflationary spiral.

"Once inflation expectations have come unanchored and a price-wage spiral has started, restoring stability will be very costly in economic terms," he said.

The impact of higher consumer prices on the German economy, the eurozone's largest, was readily apparent in the latest ZEW institute reading of German investor confidence for April, which spoke of "extraordinary" price pressures.

The institute's indicator fell 8.7 points and now stands at minus 40.7 points, down from minus 32.0 points in the previous month. Economists polled by Thomson Financial had expected the index to rise to minus 29.0 points.

"Economic expectations were affected by the extraordinary high price pressure in Germany this month," the ZEW said in a statement Tuesday.

"High rates of inflation reduce the available income of consumers and, hence, weaken private consumption. Low numbers of incoming orders of German companies point to slower growth in Germany as well."

Earlier Tuesday France and Italy both reported spikes in their annual inflation rates that they blamed on the food and energy sectors.

France's annual rate jumped to a near-17-year high of 3.2 percent in March, the statistics institute INSEE reported Tuesday.

Compared to February, French consumer prices were up 0.8 percent, their sharpest monthly surge since 1987.

The annual figure for March was the highest reading since August 1991 and came after a 2.8 percent rise in February from the same month in 2007.

Energy prices were up 2.7 percent in March from February and 12.7 percent compared with March 2007. Food prices gained 0.4 percent from February and 5.3 percent on the year, according to INSEE.

"Household finances are in for a rough ride in 2008," warned economist Mathieu Kaiser of the BNP Paribas bank.

The fear is that strapped households will cut back on spending, a key driver of the French economy.

"There are today good reasons to fear a softening in household consumption in the months ahead, especially if French consumer confidence continues to erode significantly," said Aleander Law of the research group Xerfi.

He predicted that French economic growth would be limited to 1.4 percent this year. The government has already revised its target to 1.7-2.0 percent from 2.0-2.5 percent.

In Italy the annual inflation rate surged to 3.3 percent in March, its highest reading since September 1996, the statistics institute Istat reported.

Consumer prices in February had risen 2.9 percent compared to the same month in 2007.

The rising cost of basic needs such as petrol, electricity and food staples - including pasta - contributed to public frustration with the outgoing centre-left government of Romano Prodi ahead of the elections won Monday by conservative leader Silvio Berlusconi.
[AFP / Expatica]

0 Comments To This Article