German producer price inflation hits record high as energy costs spiral By Reuters

© Reuters. FILE PHOTO: A steel worker for Germany's industrial conglomerate ThyssenKrupp AG takes a sample of raw iron from a blast furnace at Germany's largest steel factory in Duisburg,Large foreign exchange trading platform Germany, January 28, 2019. REUTERS/Wolfgang Rattay

BERLIN (Reuters) -German producer prices rose in January at their fastest rate since modern records began, soaring 25% as energy costs spiralled and extending a run of sharp increases expected to keep consumer inflation at around 5% for several months more.

The jump in PPI, considered a leading indicator for consumer prices, was the biggest since 1949, when West and East Germany were founded and the country's post-war economic data series began.

Analysts polled by Reuters had expected the figure, published on Monday by the Federal Statistics Office, to remain at December's 24.2%. Sharp (OTC:SHCAY) increases of 18.4% and 19.2% respectively were logged in October and November, respectively.

That succession of jumps in the measure of factory gate prices, taken before products are processed further or go on sale, suggests "the pressure in the inflation pipeline remains high," said Commerzbank (DE:CBKG) economist Ralph Solveen.

"We expect the (consumer) inflation rate in Germany to hover around 5% percent into the autumn," he added.

LBBW analyst Jens-Oliver Niklasch agreed that "it's likely that retailers will pass on at least some of this (PPI pressure) on to end consumers".

Germany's Ifo economic institute has forecast average consumer price inflation of 4% this year, double the European Central Bank's (ECB) target.

The inflation pattern in the euro zone's biggest economy is being replicated elsewhere in the single currency bloc, keeping pressure on the ECB as it ponders the best way to engineer a smooth return towards its consumer inflation target of 2%.

The central bank this month opened the door for the first time to an interest rate hike in 2022 and is set to decide in March how quickly to wind down the bond-buying scheme at the heart of its monetary stimulus programme.

The ECB has argued that longer-term inflation trends remain skewed upward by transitory factors, especially energy costs, which the statistics office said rose 66.7% year-on-year in Germany in January.

Germany's BDI industry association said on Monday that those costs, which show no sign of abating, were threatening to crush the economy and called for political action to ensure the country's companies remained globally competitive.

In a BDI survey of more than 400 companies, nearly two-thirds said rising energy costs were posing a strong challenge, and nearly a quarter said their existence was under threat.

Stripping out energy prices, German producer prices rose 12% in January.

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