German goods in sharpest price gain since 1974

A leap in the cost of goods leaving German factories fanned fears of spiralling inflation in Europe’s biggest economy today.

Official figures showed that producer prices for goods made in Germany jumped by 2 per cent last month, the sharpest monthly gain since February 1974.

The latest surge in producer price inflation lifted the annual rate to 8.9 per cent in July, a 27-year high that was boosted by the soaring cost of fuel for manufacturers.

German factories recorded a 5.1 per cent jump in their energy bills last month that left them up by almost a quarter over the past year. Gas prices were up by 27.1 per cent in a year, oil costs by 28.3 per cent, and electricity bills by 22.6 per cent.

Increasing pressure on prices follows official figures earlier this month showing German consumer price inflation remained stuck at a 15-year high of 3.3 per cent in July.

The European Central Bank left interest rates unchanged at 4.25 per cent this month and insisted that inflation remained its key concern even though risks to growth were taking hold.

On Monday, Germany’s Bundesbank said that inflation could ease slightly during the coming months as prices for fuel and agricultural products retreated. However, the central bank cautioned that inflation was likely to remain significantly above 2 per cent.

Fears over Germany's prospects were eased this morning when sentiment among the country's investors bounced back by more than expected during August as a weaker euro and lower oil prices relieved some angst over the outlook.

The ZEW economics institute's gauge of investor expectations, based on a poll of 297 analysts and investors, rose to minus 55.5 for this month, from a July reading of minus 63.9.

The improvement in confidence came despite last week's grim news that the German economy shrank by 0.5 per cent in the second quarter, slumping after boom-like first quarter growth of 1.3 per cent, according to official figures.

Source: Timesonline.co.uk