German July Import Prices Rise Most in Eight Years

By Simone Meier

Aug. 27 (Bloomberg) -- Import-price inflation in Germany, Europe's largest economy, accelerated to the fastest pace in almost eight years in July, led by surging energy costs.

Prices rose 9.3 percent from a year earlier, the Federal Statistics Office in Wiesbaden said today. That's the biggest gain since November 2000. Economists expected an increase of 9.2 percent, the median of 15 forecasts in a Bloomberg News survey showed. In the month, prices rose 0.6 percent.

Today's report is further evidence of pressure on inflation after producer prices rose the most since October 1981. Even though oil prices have retreated 20 percent from a record of $147.27 a barrel and a faltering economy makes it more difficult for companies to pass on higher costs, European Central Bank policy makers have warned that past commodity price increases will pose a risk to inflation in the months ahead.

``Even though the worst may be over in terms of oil price increases it's certainly too early for the ECB to sit back and relax,'' said Kenneth Broux, an economist at Lloyds TSB Group Plc in London. ``The decreases will slow the pace of price rises but we're far from a level the ECB is comfortable with.''

German inflation probably slowed to 3.4 percent in August from 3.5 percent in the previous month, when measured using a harmonized European Union method, a Bloomberg survey shows, still well above the ECB's limit of just below 2 percent. The Federal Statistics Office will publish August inflation later today.

Prices of gas rose 53.6 percent in the year and oil was 51.6 percent more expensive, today's report showed. The cost of coal increased 77.6 percent from July 2007. Excluding energy, import prices rose 3.5 percent in the year.

Inflation Pressures

The cost of crude oil has increased 57 percent over the past year. The euro's 6.9 percent gain against the dollar over the same period has helped soften the impact of surging energy costs by making imports more affordable.

ThyssenKrupp AG, Germany's largest steelmaker, on Aug. 14 raised its full-year earnings forecast as increasing demand from builders and automakers drove prices to a record. Chief Financial Officer Ulrich Middelmann said that day there were ``very few clients who rejected renegotiations'' on prices.

In Germany, producer-price inflation accelerated more than economists forecast to 8.9 percent in July. Wholesale prices surged 9.9 percent in July, the most since November 1981.

Slowing growth may not help push down inflation anytime soon, ECB council member Axel Weber said on Aug. 14, when citing ``upside risks'' to price stability. The Frankfurt-based central bank on Aug. 7 kept its key rate at 4.25 percent to fight inflation, which remained at 4 percent in July.

``Inflation concerns are here to stay for a while,'' said David Kohl, deputy chief economist at Julius Baer Holding AG in Frankfurt. ``We're only at the beginning of an economic downturn and it will take some time for inflation to slow.''

German consumer confidence dropped to a five year low and business confidence declined to the lowest in three years in August, reports yesterday showed.

The worsening European growth outlook and retreating oil prices have already prompted investors to scale back bets on the ECB raising interest rates further this year, Eonia forward contracts show. The rate on the December contract was at 4.23 percent yesterday, down from 4.40 percent a month ago.

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