European Producer-Price Inflation Eases to 3-Year Low

Oct 2, 2007 - European producer-price inflation eased in August to the lowest rate in more than three years, reflecting a drop in energy costs.

Factory-gate prices in the euro region rose 1.7 percent from the year-earlier month, down from a 1.8 percent increase in July, the European Union's statistics office in Luxembourg said today. That is the lowest reading since April 2004. Unemployment in the 13 nations that use the euro remained at a record low in August, according to a separate report.

The easing in inflation may be temporary after prices for commodities including oil and wheat reached records last month. While the European Central Bank in September stepped back from a planned interest-rate increase after turmoil in the credit markets pushed up borrowing costs, policy makers have so far refused to shift their focus from fighting inflation.

"Excluding energy and food, there are some signs of pipeline pressures for core inflation," said Luigi Speranza, an economist at BNP Paribas in London. "We see a very moderate upturn in prices, nothing to threaten the price stability."

The producer-price inflation rate for August was lower than the 1.8 percent median forecast of 27 economists surveyed by Bloomberg News. Prices rose 0.1 percent in the month, compared with a 0.3 percent increase in July.

Inflation pressure may be curbed as the pace of euro-area economic growth eases, according to BNP, which forecasts that the ECB will leave its benchmark interest rate at 4 percent through 2008.

Unemployment

Unemployment in the 13-nation euro area remained at 6.9 percent in August, the lowest since the data series began in 1993. The rate is down from 7.8 percent a year earlier.

Energy prices at the producer level fell 0.7 percent in August from the previous month and were down 2.2 percent from a year earlier, according to today's report.

Oil prices have jumped 31 percent since the beginning of the year and reached a record $83.90 a barrel on Sept. 20. Wheat prices have almost doubled this year, touching a record $9.6175 last week.

ECB policy makers, who hold their next meeting in Vienna Oct. 4, remain concerned about inflation, which they aim to keep at or below 2 percent. Consumer-price growth in the euro area accelerated last month to a 13-month high of 2.1 percent.

"The monetary-policy stance is still on the accommodative side," ECB Vice President Lucas Papademos said on Sept. 28. "At the same time, given the increase in uncertainty surrounding the economic outlook, it is prudent and appropriate to wait and gather additional information before drawing any firm conclusions for monetary policy."

Euro Zone M3 Continues To Expand In August

Sep 27, 2007 - The M3 broad money supply measure grew a seasonally adjusted 11.6% in annual terms in August, the European Central Bank, ECB, said Thursday. This was slightly lower than the 11.7% expansion forecast by economists. The M3 had grown at a slightly higher rate of 11.7% in the previous month. The three- month average rate of growth came in at 11.4%.

The M1 measure of money supply comprises currency like banknotes and coins and overnight deposits and is commonly referred to as narrow monetary aggregate. The M2 is an intermediate aggregate, and comprises deposits with an agreed maturity up to two years, along with the M1.

The M3 is the broad measure of money supply, which the ECB uses to determine inflationary pressures. M3 comprises of M1 and M2, and certain marketable instruments. The M3 is less affected by substitution between various liquid asset categories and is more stable than narrower definitions of money.

M1 grew a seasonally adjusted 6.8% on an annual basis, the same as in the last month. Short-term deposits, stripped of overnight deposits, climbed 15.3%, slightly more than the 15.0% growth in the previous month. On the other hand, the growth of marketable instruments slowed to an annual growth 17.8%, after expanding 19.5% in the prior month.

On the asset side of the consolidated balance sheet, total credit granted to euro area residents advanced at an annual rate of 8.8% in August, a tad more than the 8.7% growth in the previous month. Credit extended to general government eased 4.2%, on the heels of a 3.7% annual decline in the preceding month.

Credit extended to the private sector quickened to 11.8% annual growth in August, after gaining 11.6% in July. Loans to the private sector climbed 11.2% in August, following an 11% expansion in the previous month. Loans to non-financial corporations surged a seasonally unadjusted 14.2% in August, while loans to non-financial corporations climbed 13.6% annually in the preceding month.

In August, loans to households grew 7% on an annual basis, while loans for house purchase expanded 8.1%. Consumer credit advanced 5.7% annually in August, a little less than the 5.8% growth in the previous month.

Loans to non-monetary financial intermediaries, except insurance corporations and pension funds soared 19.6% on an annual basis in August, slightly less than the 20.5% surge in the preceding month.

In the twelve months to August, the net external asset position of the euro area MFI sector rose 247 billion euros, less than the 280 billion euros rise in the twelve months to July. Longer-term financial liabilities climbed 9.4% in August, after gaining 9.3% annually in July. Among the central banks, the ECB had taken the lead in mitigating the global credit squeeze by pumping in some 95 billion euros into money markets in August. The ECB said Thursday that it had loaned 3.9 billion euros at a penal 5% rate to unspecified borrowers. This was the largest sum tapped from its ‘marginal lending facility' since October 2004, the Financial Times reported.

This showed that European banks continued to face credit difficulties as a fall-out of the U.S. sub-prime crisis, analysts opined. The ECB was acting to ease the tightening of credit in money markets that has sent short-term interest rates soaring. Yet, once the money markets settled down to normal functioning, the ECB would shift its focus back to fighting inflationary pressures, analysts said.

Euro Zone Current Account Surplus Declines In July

Sep 21, 2007 - The Euro zone current account surplus declined more than expected in July, official data showed Friday.

The European Central Bank, or ECB, revealed that the current account surplus declined to a seasonally adjusted 1.7 billion euros in July, from the 7.3 billion euros registered in June. The number for June was revised up from the 5.9 billion euros estimated earlier. Economists expected the surplus to decline to 3.5 billion euros in July. Surpluses in goods, services and income were partly offset by a deficit in current transfers in July.

The surplus in goods as well as service decreased in July. Trade in goods showed a surplus of 2.6 billion euros in July, down from the 7.9 billion euros in the previous month. Surplus in services declined to 3.0 billion euros from 4.6 billion euros. The shortfall in current transfers widened to 5.2 billion euros from the 5.0 billion euros deficit recorded in June. Meanwhile, the income account showed a surplus of 1.3 billion euros, reversing a deficit of 0.2 billion euros in the prior month.

In the financial account, combined direct and portfolio investment recorded net inflows of 37 billion euros in July, reflecting net purchases of euro area equity securities by non-residents. Within portfolio investment, net inflows in equity securities accounted for by net purchases of euro area equity securities by non-residents. Net outflows in debt instruments resulted mainly on account of net purchases of foreign bonds and notes by euro area residents. Other investment showed net inflows of 28 billion euros.

On an unadjusted basis, the surplus in current account amounted to 3.3 billion euros, smaller than a revised 12.6 billion euros posted in the previous month. The number for June was revised from 11.4 billion euros initially estimated.

During twelve months till July, combined direct and portfolio investment had cumulated net inflows of 188 billion euros compared to a net outflow of 43 billion euros a year ago.

Europe's August Inflation Rate Eases, Reaches 10-Month Low

Sep 14, 2007 - Inflation in Europe eased more than initially estimated in August, dropping to a 10-month low because of an annual decline in energy prices.

Consumer prices in the 13-nation euro region increased 1.7 percent from August 2006, down from 1.8 percent in July, the European Union's statistics office in Luxembourg said today. Last month's rate was lower than an estimate of 1.8 percent published Aug. 31. Prices rose 0.1 percent on the month.

The European Central Bank, which has increased its key lending rate eight times since late 2005, shelved a planned increase earlier this month after a U.S. housing crisis pushed up borrowing costs and caused global financial market turbulence. Still, with oil and food prices rising, policy makers say inflation risks remain on the 'upside.'

ECB cuts 2007 euro zone growth forecast due to financial markets crisis

Sep 6, 2007 - The European Central Bank has cut its forecast for 2007 euro zone growth in the wake of the recent credit crunch in financial markets.

The ECB cut its forecast for 2007 GDP growth to 2.5 pct from 2.6 pct but held on to its projection for 2008 growth at 2.3 pct.

The ECB also kept its 2.0 pct inflation forecast for this year and next year.

The forecasts are the mid-point of ranges given by ECB president Jean-Claude Trichet at today's ECB news conference.

They are compiled by ECB staff and provide one input to the ECB governing council's assessment of price developments and risks to price stability, but they do not play a dominant role in the council's monetary policy decisions, the central bank says.

The ECB publishes its forecasts every three months. The previous forecasts were given on June 6.

The full ranges given by Trichet for the growth forecasts were 2.2-2.8 pct in 2007 and 1.8-2.8 pct in 2008. The ranges for the inflation forecasts were 1.9-2.1 pct in 2007 and 1.5-2.5 pct in 2008.

The forecasts are based on market expectations for interest rates and commodity prices.

The ECB said the forecasts therefore assume that three-month euribor interest rates will average 4.3 pct in 2007 and 4.5 pct in 2008, and that 10-year government bond yields will remain flat at their mid-August level of 4.5 pct.

Oil prices are assumed to average 68.1 usd per barrel on average this year and 71.9 usd in 2008.

The oil price assumptions reflect futures market prices and represent an upward revision from the ECB's June forecasts when it was assuming that oil prices would average 65.00 usd in 2007 and 69.90 usd in 2008.

Non-energy commodity prices are expected to increase 20.0 pct this year and 5.7 pct in 2008.

The forecasts also see the euro remaining at 1.37 usd over the next two years and that its trade-weighted index will be 3.1 pct higher this year than the 2006 average and 0.5 pct higher in 2008 compared to this year's average.

Euro zone Q2 GDP up 0.3 pct from Q1, unchanged vs provisional estimate

Sep 4, 2007 - Euro zone GDP grew 0.3 pct in the second quarter from the first, and was up 2.5 pct year-on-year, EU statistics office Eurostat said.

The figures are unchanged from Eurostat's provisional estimates, published on Aug 14.

Eurostat gave a breakdown of second quarter GDP for the first time.

It said household consumption rose 0.5 pct quarter-on-quarter, investment fell 0.5 pct and government spending rose 0.1 pct.

Household consumption made a positive contribution of 0.3 percentage points to the quarterly GDP figure, while investment made a contribution of 0.0 points.

Changes in inventories made a negative contribution of 0.1 points and government spending accounted for 0.0 percentage points of the GDP increase.

Meanwhile, the European Commission left its growth forecasts unchanged for growth in the third, fourth and first quarters.

The commission forecasts growth of 0.3-0.8 pct for the third quarter, 0.2-0.8 pct for the fourth quarter, and 0.2-0.9 pct for the first quarter of 2008.