In November the Euro area consumer prices index rose by 3.1% over year, which has been the highest rate since May 2001 (table 1). Inflation rose by 0.4% m/m.
Positive impact came out from fuel, food and tourist services. Gasoline prices climbed by 13.7% m/m and contributed 0.49 percentage points to the overall CPI rate. Motor fuel strongly rose in price due to marked decline in the second half of 2006 combined with the recent substantial increase of fuel prices. It was the largest downward impact among CPI components. However, customers spent 0.9% less for fueling. In the height of winter season the cost of heating oil jumped by 23.4% m/m and contributed 0.1 percentage points to the overall inflation rate.
Bread and cereals prices showed a 7.1% growth over year, which includes the positive impact of doubled wheat prices. Milk, eggs and cheese prices notably increased third month in a row. Due to these gains inflation rose by 0.28 percentage points.
Hotel and motel services rose in price after prolonged fall and contributed 0.07 percentage points to the overall inflation rate on a monthly basis. Following the accommodation services the prices of package holidays soared by 17.8% m/m. Increased prices of these services came out from enlarged demand during Christmas and New Year holidays, while Euro sharply strengthened against the main currencies.
These increases were partially offset by a decrease in communication services prices, as well as moderate growth pace of rent and clothing prices. In December telecommunication services prices tumbled down by 2.3% y/y, compared with 1.8% drop in prior month. Negative impact on the CPI from the deceleration in clothing and footwear prices diminished to 0.12 percentage points over year.
Core inflation, which excludes food, energy and tobacco prices, remained unchanged at 1.9% over year (chart 1).
The highest inflation rates were observed in Slovenia (5.7%), Luxemburg (4.3%) and Spain (4.3%). Inflation growth rate in France sharply accelerated to 2.8% y/y. Italy is moving parallel with France, where the same growth rate of CPI was stated. The acceleration of the pace of structural reforms accomplishment, especially VAT hike in Germany early last year, favored the acceleration of the inflation rate to 3.1% y/y. This is the lowest level among the Euro Area large countries.
Gradual acceleration of consumer prices index, excluding food, tobacco and energy, is caused by higher restaurants, café and education services prices. However, all these sources of inflation growth have a seasonal character. In medium term, higher inflation was stimulated by favorable economic growth in the Euro area and structural reforms in Germany. In particular, the leadership of Germany in the pace of inflation growth among big European countries is a result of VAT rate hike and several wage negotiations, particularly in manufacturing. Positive impact of higher oil prices reflected gasoline and diesel oil prices.
On the other hand, the US economic growth has been decelerating, which, will undoubtedly have a negative impact on the Euro area GDP. Numerous bankruptcies of mortgage companies that were providing Subprime and Alt-A loans, huge losses of investment banks and unwillingness of the banks to lend each other are aggravating the situation, which was named credit crisis. The latter will have negative pressure on domestic demand and thereby on prices.
On the basis of the above mentioned we expect that core inflation will remain within 2.0% for the first quarter of this year.
EURO AREA ECONOMIC INDICATORS
Table 1
|
Inflation, %
|
2007
|
|
2006
|
|
Dec
|
Nov
|
Oct
|
...
|
Dec
|
Nov
|
Oct
|
|
Consumer Prices Index
|
|
|
|
|
- m/m
|
0.4
|
0.5
|
0.5
|
|
0.0
|
0.0
|
0.1
|
|
- y/y
|
3.1
|
3.1
|
2.6
|
|
1.9
|
1.9
|
1.6
|
|
CPI ex. energy, food, alc. and tob.
|
|
|
|
|
- m/m
|
0.5
|
0.3
|
0.3
|
|
0.0
|
0.0
|
0.3
|
|
- y/y
|
1.9
|
1.9
|
1.9
|
|
1.5
|
1.5
|
1.5
|
|
Countries, y/y
|
|
|
|
|
- Germany
|
3.1
|
3.3
|
2.7
|
|
1.4
|
1.5
|
1.1
|
|
- France
|
2.8
|
2.6
|
2.1
|
|
1.7
|
1.6
|
1.2
|
|
- Italy
|
2.8
|
2.6
|
2.3
|
|
2.1
|
2.0
|
1.9
|
|
- Spain
|
4.3
|
4.1
|
3.6
|
|
2.7
|
2.6
|
2.9
|
Source: Eurostat
Chart 1
Source: Eurostat
