04 March 2008

EZA 834 Report: ECB Observer

ECB 6 March Council Data Update

• January data show sharp uptick in industries' output prices across all main categories, with annual rate of increase, excluding oil, rising to 3.3%.
• Confirmation of initial 'flash' estimate of 4% rise in real GDP in 2007 Q4 - slightly below trend potential - with net external trade and fixed investment more than compensating for inventory run-offs and flat to negative household and government consumption growth.
• Further evidence of increasing pass-through of external cost pressures, heightening inflation worries, while real economy still seems to weatherwell external growth concerns.
• Reinforces EZA view that ECB will stand firm against siren voices for early rate cut.

According to data released today, Tuesday, industrial producer prices, having increased by only 0.1% in December after rising at an average monthly rate of just over 0.6% in the previous three months, shot up by 0.8% in January to a level 4.9% higher than a year earlier. On average in the three months to January, producer prices were 1.8% higher than in the three months to October. Energy producers' output prices, which had risen only 0.2% in December, increased by a further 1.4% in January, to a level 10.6% higher than a year earlier. The rise in other industrial output prices also accelerated strongly, from 0.1% to 0.6% rose by 0.1%, to a level 3.3% higher than in January 2007, although the sub-index for non-durable goods (of which food is a major component) rose by 0.4% to a level l4.2% higher than a year earlier. Particularly notable was the widespread nature of the January increase in non-energy prices, being spread across all major categories: intermediate goods +0.9%; capital goods +1.4%; durable consumer goods +0.85%; and non-durable consumer goods 0.6%

21. Eurostat's recent 'flash estmate of 0.4% real GDP growth in 2007 Q4 has been confirmed by todays release of the first full estimate of Q4 GDP and its principal components. With export growth slowing to 0.5% but imports falling by 0.4%, net external trade contributed the full 0.4 percentage points to Q4 growth. Domestic demand made a zero net contribution: although gross fixed investment remained fairly buoyant, increasing by 0.8% and so contributing 0.2 pp to GDP growth, a run-down of inventories together with slight falls in household and government current expenditures effectively cancelled out this positive stimulus.

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