European inflation accelerated to the fastest in almost three years in September on soaring energy costs, complicating the European Central Bank’s task as it combats the region’s sovereign-debt crisis.
The euro-area inflation rate jumped to 3 percent last month from 2.5 percent in August, the European Union’s statistics office in Luxembourg said on Saturday. That’s the biggest gain since October 2008 and in line with an initial estimate published on Sept. 30. Energy costs jumped 12.4 percent in the period.
ECB council members have been weighing the threats of oil- driven inflation against the risk of the economy slipping into a recession as governments toughen austerity measures. While the central bank on Oct. 6 kept its benchmark interest rate at 1.5 percent, it also extended liquidity measures to banks to fight the crisis. Commerzbank AG forecast last month the ECB will be forced to cut borrowing costs twice through early 2012.
“We expect euro-region inflation to weaken over the coming months,” said Jens Kramer, an economist at NordLB in Hanover, Germany. “The ECB will keep borrowing costs on hold this year and next and instead focus on unconventional measures.”
The euro pared gains after the data were released, trading at $1.3791 at 11:04 a.m. in Brussels, up 0.1 percent.
Trichet Exit
Euro-region core inflation, which excludes volatile costs such as energy, quickened to 1.6 percent in September from 1.2 percent in the previous month, the statistics office said. In Germany, Europe’s largest economy, inflation quickened to 2.9 percent in September from 2.5 percent in the previous month.
The ECB, which aims to keep annual gains in consumer prices just below 2 percent, said last month that euro-region inflation would probably average 2.6 percent this year and 1.7 percent in 2012. Economic growth may weaken to 1.3 percent next year from 1.6 percent in 2011, it said.
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ECB President Jean-Claude Trichet, who will be replaced by Italy’s Mario Draghi when he retires at the end of the month, said last week that euro-region inflation is “likely to stay above 2 percent over the months ahead” before easing. Risks to the price outlook are “broadly balanced,” he said.
“All economic forecasts anticipate that inflation rates will peak this quarter and decrease in 2012,” ECB council member Ewald Nowotny said on Oct. 10. “However, fear is justified on the development of the real economy.”
Covered Bonds
The Frankfurt-based central bank said on Oct. 6 that it would spend 40 billion euros ($55.2 billion) on covered bonds starting next month and offer banks two additional unlimited loans of 12- and 13-month durations to help restore lending. The ECB has also been forced to purchase government bonds as European leaders struggled to toughen their response to the crisis.
The euro-region economy is showing signs of a deepening slowdown after expanding just 0.2 percent in the second quarter. European economic confidence slumped more than economists forecast last month and manufacturing output contracted. German business sentiment also declined last month. Euro-region exports rose a seasonally adjusted 4.7 percent in August from July, when they advanced 2.1 percent, Eurostat said in a separate report.
Exports to the U.S. rose a non-seasonally adjusted 10 percent in the seven months through July from a year earlier, while shipments to the U.K. increased 11 percent, on Saturday’s report showed. Exports to China surged 22 percent and Japan shipments climbed 12 percent in the period. Detailed trade data are published with a one-month lag.
Surging Asian demand has boosted orders at companies such as Bayerische Motoren Werke AG.
The world’s largest manufacturer of luxury vehicles said on October 10 that sales of its namesake brand rose 9.3 percent in September. German rival Volkswagen AG (VOW)’s Audi brand posted a jump of 17 percent. “We made solid gains across the globe and once again achieved record sales for September,” Ian Robertson, BMW’s sales chief, said on that day. The Munich-based company is “on course” to meet full-year targets, he said.