Inflation in Germany, Europe's largest economy, accelerated more than forecast in May as oil surged.
Consumer prices rose 3 per cent from a year ago after rising 2.6 per cent last month, when measured using a harmonized European Union method, the Federal Statistics Office in Wiesbaden said today.
In the month, prices increased 0.6 percent. A jump in crude oil prices to a record $135.09 a barrel on May 22nd is pushing up inflation in Germany and across the economy of the 15 euro nations, draining consumers' purchasing power.
The European Central Bank this month left its key rate at a six-year high of 4 per cent to counter inflation pressures. "Inflation will accelerate further over the summer," said Nick Kounis, an economist at Fortis Bank in Amsterdam.
"Underlying inflationary pressures will also build as companies pass on soaring costs,'' keeping euro-area inflation above 3 per cent for most of the rest of the year."
Adding to the ECB's inflation concerns, German import prices rose more than economists expected in April, gaining 0.9 per cent from March, the statistics office said today. Economists forecast a 0.7 per cent increase.
German inflation has exceeded the ECB's limit of just under 2 per cent for more than a year as the euro's appreciation fails to offset higher oil and food costs. Germany's ECB council member, Axel Weber, has said the bank may need to raise interest rates to contain inflation.
The bank shelved a planned increase in September after the US housing slump caused money and credit markets to seize up.
Investors have increased bets that faster inflation will force the ECB to raise its key lending rate. EONIA swap contracts, a widely used market gauge of interest-rate expectations, rose as high as 4.25 per cent yesterday from 3.99 per cent two weeks ago.
Bloomberg