German Inflation Hit Six-Year High Last Month

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Nando Times

German inflation hit 6-year high last month

The Associated Press

WIESBADEN, Germany (March 13, 2001 11:12 a.m. EST) - German officials reported Tuesday that the country's inflation climbed to a six-year high last month, dampening hopes that the European Central Bank will cut interest rates any time soon.

Prices rose at a rate of 2.6 percent in February over the year before, the Federal Statistics Office said. That compares with an inflation rate of 2.4 percent in January and 2.2 percent in December.

High oil prices were the driving force behind the increase during the winter home heating season. The statistics office noted that in February the price for light heating oil rose 9.9 percent from the previous year and natural gas rose 33.5 percent.

The report increased pressure on the European Central Bank to keep interest rates unchanged in the 12 European countries sharing the euro as a common currency.

That sentiment was echoed by Germany's ECB governing council member, Ernst Welteke.

"Risks to price stability are more balanced now. But we need to remain vigilant," Welteke said. "The oil price rise continues to have an effect."

Welteke said a downturn in the euro's exchange rate could make imports more expensive, fueling inflation at that end too. "Therefore, we are well advised to continue to wait," he added.

Business leaders have been pressuring the Frankfurt-based central bank to give the flagging European economy a boost by cutting interest rates, which tends to make it easier for businesses to borrow money and fund expansion.

But ECB president Wim Duisenberg said just last week that the bank was holding off on a rate cut because inflation remains a concern.

The ECB manages interest rates and wants to keep inflation below 2 percent. Inflation across the euro region currently stands at 2.4 percent, and keeping interest rates higher tends to put a cap on inflation.

Duisenberg said inflation should fall below its 2 percent target ceiling in the next three to four months, but the new data from Germany indicate that some prices are still creeping upward. Figures from Germany are especially weighty because the country accounts for nearly 35 percent of the euro zone's economic output.

-- Rachel Gibson (rgibson@hotmail.com), March 13, 2001


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