German August Producer-Price Inflation Slows on Energy Costs

A rebound in oil prices to a record $82.38 a barrel yesterday threatens to push up inflation in the economy of the 13 euro nations as faster hiring gives companies room to pass on costs. European Central Bank council members including Axel Weber have signaled they’re ready to support raising interest rates further.

“We expect producer-price inflation to show a slight acceleration in the year,” said Lothar Hessler, an economist at HSBC Trinkaus & Burkhardt AG in Dusseldorf. “There’s a small negative effect from oil prices. We expect one more rate increase this year,” taking the benchmark to 4.25 percent.
“We have to expect somewhat higher inflation rates for the rest of the year,” Weber, who is also president of Germany’s Bundesbank, said yesterday. “We’re concerned about the new record high in oil prices.”

Still, with the German economy showing signs of cooling, it may become more difficult for companies to pass on higher costs. German investor confidence fell more than economists forecast in September to the lowest since December on concern the collapse of the U.S. housing market will curb an economic expansion.

Germany’s RWI institute, one of four economic groups that advise the government, yesterday cut its growth forecast for 2008 to 2.3 percent from 2.6 percent projected in June. In 2007, the economy may expand 2.5 percent, the Essen-based RWI said.

Bloomberg