German producer price inflation accelerated by more than expected in May to its highest level since July 2006, in the latest sign of mounting price pressures in Europe's largest economy.
Prices increased by 1 per cent month-on-month and by 6 per cent on the year, fuelled by a sharp rise in energy costs the Federal Statistics Office said today. In April, prices were up 1.1 per cent on the month and 5.2 per cent on the year.
Economists polled by Reuters had forecast prices would rise by 0.9 per cent month-on-month and by 5.8 per cent year-on-year.
"This morning's reading indicates once again that there is enormous pressure in the inflation pipeline, since energy and food prices have been soaring," said Andreas Rees, an economist at Unicredit in Munich."
The European Central Bank has signalled it could raise interest rates next month to tackle consumer price inflation in the euro zone, which hit a record 3.7 per cent in May.
With oil prices rising to a record of nearly $140 per barrel earlier this month, Mr Rees said annual producer price inflation in Germany could pick up to 7 per cent in June, which would take it to its highest level since spring 1982.
A breakdown of the Office's latest numbers showed energy costs were up by 15 per cent on the year. Excluding this, German producer price increased by 2.9 per cent.
Compared with April 2008, the price of mineral oil products rose by 7.9 per cent. The cost of light heating oil was up 14.5 per cent, with heavy heating oil up 7.3 per cent on the month.
Separately, the Finance Ministry said German economic growth would likely slow sharply in the second quarter after a strong start to the year as inflation weighs on private consumption.
The president of the HDE retail association, Josef Sanktjohanser, told Reuters earlier this week that prices in Germany's retail sector would likely rise by more than 2 percent this year, their biggest increase in more than 10 years.