German Producer Prices Post Biggest Jump in 27 years

Energy prices have increased 24.5% compared to last year.

German prices at the factory gate, an early indicator of inflation, rose at their fastest rate in 27 years in July, data showed on August 19 in another worrying sign for Europe's biggest economy.

Producer prices were 8.9% higher than in July last year, the statistics office said, topping a 6.7% jump seen in June.

The main culprit was higher energy prices, soaring 24.5% compared to last July and costing 5.1% more than in June alone. Stripping these out, producer prices inched up just 3.6%.

The German economy contracted 0.5% in the second quarter compared to the first three months of the year, data showed last week, while eurozone output as a whole fell by 0.2%.

But as the data for Germany show, inflation remains strong, meaning the European Central Bank with its strict mandate to keep a lid on price rises is not in a position to spur activity by cutting interest rates.

Andreas Rees at UniCredit said though that the rise in German producer prices, the biggest since October 1981, was "the last hurrah of inflation."

Copyright Agence France-Presse, 2008

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