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UPDATE 1-Oil keeps euro prices above ECB target; imports shrink
May 16, 2012 / 11:31 AM / 5 years ago

UPDATE 1-Oil keeps euro prices above ECB target; imports shrink

* Euro zone inflation at 2.6 percent in April yr/yr

* Oil prices, clothing keep it above ECB’s target

* Flat imports growth underscores stagnant economy

By Robin Emmott

BRUSSELS, May 16 (Reuters) - Costlier fuel and clothing kept euro zone inflation well above the European Central Bank’s target in April, giving policymakers little room to stimulate growth even though Germany has signalled it may tolerate higher prices at home.

Consumer price inflation in the 17 countries sharing the euro was 2.6 percent in April, the EU’s statistics agency Eurostat said on Wednesday, down from 2.7 percent in March but still stubbornly high given Europe’s drift towards recession.

Inflation remains at February’s level since dropping from a three-year high of 3 percent late last year, with the cost of living ticking up even in depressed economies such as Spain and Italy as oil prices remained close to all-time highs in April.

“Inflation should decrease moderately this year, but a lot depends on the evolution of oil prices,” said Clemente De Lucia, a senior economist at BNP Paribas in Paris.

Consumer prices rose 0.5 percent in April from March, as economists polled by Reuters had expected, driven by oil.

Energy prices jumped 1.1 percent on the month and clothes prices were 2.3 percent higher. There was no change in the cost of food and the cost of education and communications fell.

Brent crude slipped to $110.85 a barrel on Wednesday as deep uncertainty surrounding new Greek elections clouded the economic outlook in Europe, but were still around $120 for much of April.

Economists see inflation coming down during the year as the euro zone struggles with record unemployment and weak business morale, but the ECB says prices will still be above the bank’s “close to but below two percent” level for the rest of 2012.

That appears to rule out an unprecedented move by the ECB to take interest rates to below the current 1 percent level in the coming months, although senior German policymakers have sent clear signals that they are willing to accept a stronger rise in German prices than may have been tolerable in the past.

“The ECB seems generally reluctant to take euro zone interest rates any lower given sticky inflation,” said Howard Archer, chief European economist at IHS Global Insight.

Acceptance of higher inflation in Europe’s biggest economy, partly through higher wage deals, could help struggling states in Europe’s southern periphery by lifting demand for their goods and improving their competitiveness relative to Germany.


A day after Eurostat data showed that the euro zone’s economy stagnated in the first quarter of 2012, the weakness was again highlighted by the lack of growth in imports to the euro zone in March, according to seasonally unadjusted Eurostat data.

Exports in March grew 4 percent after a double-digit rise in February, as Chinese demand cooled with the economy there.

Adjusted for seasonal effects, imports shrank 1.1 percent month-on-month in March and exports declined 0.9 percent, underlining the deceleration in the economy.

Trade registered a surplus of 4.3 billion euros on a seasonally adjusted basis, slightly higher than the 4-billion euro level in February, but that was mainly due to the decline of imports, rather than signs of growth.

“This reflects a poor level of economic activity in the euro zone and an even worse domestic demand,” said Dominique Barbet, an economist also at BNP Paribas.

Most euro zone governments are imposing austerity policies, often at great cost to their electorates and to growth, hoping to counter the debt crisis by cutting their budget deficits.

But weak or shrinking economic output is making it harder to reach the EU-mandated targets, calling into question the wisdom of cutting so deeply.

Optimism in January that the euro zone would recover quickly in 2012 has been crushed by unexpected contractions in manufacturing, consumer confidence and business morale, while one in 10 euro zone workers is out of a job.

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