Expensive energy kept euro zone inflation well above the European Central Bank's target in June and industrial output jumped in May, data showed today, reinforcing expectations of an ECB interest rate rise on August 3rd.
Consumer prices rose 2.5 per cent year-on-year and 0.1 per cent month-on-month in June, the European Union's statistics office Eurostat said.
The annual rate was unchanged from the previous month and from an earlier Eurostat estimate for June even though the bloc's two biggest economies, France and Germany, revised down their June inflation rates by 0.1 percentage points last week.
While inflation was in line with expectations, May industrial production was higher than forecast, rising 1.6 per cent month-on-month and 4.9 per cent year-on-year against expectations of 1.4 and 4.2 per cent increases respectively.
"The ECB has all the collateral evidence it needs to strike while the iron is hot with another rate hike at the August 3rd rate policy meeting," said David Brown, Chief European economist at Bear Stearns.
"Euro zone inflation is stuck well above target at 2.5 per cent, while there are spreading signs of stronger euro zone recovery, with industrial output up 4.9 per cent from a year ago," he said.
The ECB aims to keep inflation below, but close to 2.0 per cent. It has raised rates by three times since December to stem inflationary pressures from high energy prices and fast credit growth as the euro zone economy gathers steam.
The main ECB rate is now 2.75 per cent and the persistently high inflation and the strong production data made it more likely the ECB would keep raising borrowing costs to 3.5 per cent by the end of the year, economists said. Eurostat said fuels for transport had the largest upward effect on the headline inflation rate, followed by gas and heating oil.
Despite a 0.1 per cent monthly decline, energy prices were 11 per cent higher in June than a year earlier. Excluding energy and unprocessed food prices, a measure the ECB and the European Commission call core inflation, prices grew 0.1 per cent month-on-month as expected for a 1.5 per cent annual rate, up from 1.4 per cent in May.
Euro zone industrial production rose by a stronger-than-expected 1.6 per cent month-on-month in May for a 4.9 per cent year-on-year gain, the European Union statistics office Eurostat said today.
The data follows weaker-than-expected April industrial production figures, which Eurostat further revised down to a fall of 0.7 per cent month-on-month and a year-on-year rise of 1.7 per cent.
Energy was the only area in which production fell in May in the euro zone, Eurostat said, with output of intermediate, capital, and durable and non-durable consumer goods showing strong growth.
"The rebound confirms that some distortion due to the Easter timing favoured April's unexpected correction," said Luigi Speranza, economist at BNP Paribas.
"The ECB will see the continuing strength of the manufacturing sector as further justification to press ahead with normalising interest rates," said Howard Archer, Chief European Economist at Global Insight.