MNI 5 THINGS: Energy Propels Eurozone Input Costs Higher

-EMU Industrial Prices July Released Tues, Up 4.0% On Year vs 3.6% in June

Jamie Satchi

     LONDON (MNI) - Growth in Eurozone industrial prices hit a 15-month high in

July, data published by Eurostat Tuesday showed. Industrial prices were up 0.4%

on the month for a 4.0% rise on the year - the highest y/y growth since last

April.

     Post- release, we outline five themes for particular attention.

     -Eurozone industrial prices highest since April 2017. Eurozone industrial

prices (non-seasonally adjusted) grew by 4.0% y/y in July, a 15-month high, up

0.4pp from June's 3.6%. Energy was once again the driving force, up 1.1% m/m,

the same rate of growth as in June but down from May's 2.7% reading. Recent euro

weakness has also fed inflation. As energy prices begin to return to more normal

territory, leaving behind unfavourable base effects, industry prices should

begin to taper.

     -Category Breakdown. As shown in the chart below, the bulk of the upward

pressure across industrial prices over recent months has emanated from

intermediate goods and energy. Intermediate good prices rose by 3.2% y/y in

July, the highest since October, while energy prices put in a 17-month high of

10.7% y/y. While durable consumer goods and capital goods prices have been

roughly stable, non-durable consumer goods prices extended a downward trend in

place since last May - prices were flat on an annual basis in July.

     -Steel, Aluminium Prices Edging Higher. Since U.S. President Donald Trump

announced his intention to slap steel and aluminium import tariffs on selected

trading partners at the start of March, prices of both metals have risen for

Eurozone firms, albeit gently. July's y/y price increases came courtesy of base

effects, with flat growth m/m for prices of aluminium, iron, steel and

ferro-alloys pitted against marginal m/m declines this time last year.

     -Underlying Consumer Goods Price Pressures. The chart below highlights how

the decline in consumer prices can be attributed to falling prices for food,

beverages and tobacco. Core-consumer prices, a measure that strips out these

categories, continued to trend higher, potentially feeding into headline

core-HICP, after having been relatively flat until the start of 2017.

     -Data chimes with the PMI. Elevated input costs have been a recurring theme

in the headline manufacturing purchasing managers index (PMI). The July print

noted "input costs and output charges both rising at above survey-average

rates", with firms citing "tariffs, trade wars, supply-chain delays and raw

material shortages." This sentiment extended into August with steel, oil-related

goods and agricultural products reportedly costly.

--MNI London Bureau; +44208-865-3829; email: Jason.Webb@marketnews.com

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