German Import Prices Have Biggest Gain in 18 Years

By Simone Meier

June 26 (Bloomberg) -- German import prices rose the most in almost 18 years in May, adding to signs of increasing inflation pressure in Europe's largest economy.

Prices gained 2.4 percent from April, when they climbed 0.9 percent, the Federal Statistics Office in Wiesbaden said today. That's the biggest gain since September 1990. Economists expected an increase of 1.5 percent, according to the median of 16 forecasts in a Bloomberg News survey.

A surge in oil prices to a record $139.89 a barrel on June 16 has pushed up inflation and increased pressure on companies to pass on higher costs, even as a stronger euro makes imports more affordable. The European Central Bank has said it is ready to raise borrowing costs from a six-year high next month.

``Inflation pressures are much stronger than expected,'' said Thorsten Polleit, chief German economist at Barclays Capital in Frankfurt. ``It's mainly due to developments on commodity markets. Prices will continue to rise.''

From a year earlier, import prices increased 7.9 percent after rising 5.7 percent in April, the statistics office said today. That's the strongest annual increase since November 2000. Energy costs increased 10.1 percent in the month and imported crude oil was 13.3 percent more expensive, today's report showed.

The price of oil has increased 43 percent this year, draining the purchasing power of companies and consumers. The euro has gained 6.6 percent against the dollar over the same period.

Faster Inflation

In Germany, inflation probably accelerated to 3.3 percent in June from 3 percent in the previous month, a Bloomberg survey of economists shows. That would be the fastest since harmonized records began in 1996. The statistics office will release the data tomorrow.

The ECB is concerned that faster inflation will feed into wage demands and prompt companies to pass on higher costs. ECB President Jean-Claude Trichet reiterated yesterday that the bank is in a state of ``heightened alertness'' and may raise the key rate from 4 percent in July.

Adding to signs of cost pressures, German producer-price inflation accelerated to the fastest pace in almost two years in May and wholesale prices jumped the most in 26 years. Export-price inflation accelerated to 2.3 percent in May from 2.2 percent in the previous month, today's report showed.

`Readiness to Act'

Lanxess AG, Germany's biggest publicly traded specialty- chemicals maker, said on May 29 it is passing on rising raw- material costs. Continental AG, Europe's second-largest tire maker, said last month it will raise car tire prices in the region by up to 4 percent to counter rising oil costs.

The ECB forecasts inflation in the economy of the 15 euro nations will average about 3.4 percent this year and around 2.4 percent in 2009. The Frankfurt-based bank aims to keep annual gains in consumer prices just below 2 percent.

``Financial markets should by now have understood our readiness to act,'' ECB council member Axel Weber, who is also head of Germany's Bundesbank, said yesterday. ``It is our strong determination to secure a firm anchoring of medium and long-term inflation expectations in line with price stability.''

Investors expect the ECB to raise its key rate twice this year, Eonia forwards show.

Still, with the economy losing momentum and households holding back spending, companies may find it more difficult to raise prices. In Germany, consumer confidence dropped to the lowest in more than two years, GfK AG's index for July showed.

German companies ``are able to pass on higher input prices to consumers,'' said Stefan Bielmeier, an economist at Deutsche Bank AG in Frankfurt. ``However, in view of the deterioration in consumer sentiment, this elbowroom can diminish rapidly.''

To contact the reporter on this story: Simone Meier in Frankfurt at smeier@bloomberg.net