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German producer prices up from last year

German producer prices gained 7.8 percent in October from the same month a year earlier but were unchanged from September, data released on Thursday by the national statistics office showed.

Published: 20 November 2008 08:58 CET

Analysts polled by Dow Jones Newswires had forecast a drop of 0.7 percent on the month along with a more modest annualised increase of 7.1 percent.

In September, wholesale prices in the biggest European economy had risen by 0.3 percent and by 8.3 percent respectively.

“As in past months, energy prices had the most influence on the annual rate in increase,” the Destatis statistics service said, with a gain of more than 22 percent on the year.

When the cost of energy was stripped out, the producer price index rose by 2.9 percent, Destatis said.

The cost of natural gas for home heating gained 21.6 percent in October, meaning that families were likely to feel the squeeze as they head into the German winter even though consumer price increases have begun to ease.

From September to October, such gas prices rose by 6.8 percent, while the cost of electricity gained 0.1 percent on the month and 4.8 percent on the year, Destatis said.

Retail inflation fell to 2.4 percent in October, Destatis reported on November 14, a sharp drop from the level in September of 2.9 percent.

The consumer price index has begun to ease rapidly in Germany and across the 15-nation eurozone, providing more leeway for the European Central Bank to cut interest rates in a bid to boost economies like Germany’s, which are now in recession.

How is Denmark's economy handling inflation and rate rises?

The council, led by four university economics professors commonly referred to as “the wise men” or vismænd in Denmark, gave a much rosier picture of Denmark’s economy in its spring report, published on Tuesday, than it did in its autumn report last year.

“We, like many others, are surprised by how employment continues to rise despite inflation and higher interest rates,” the chair or ‘chief wise man’, Carl-Johan Dalgaard, said in a press release.

“A significant drop in energy prices and a very positive development in exports mean that things have gone better than feared, and as it looks now, the slowdown will therefore be more subdued than we estimated in the autumn.”

In the English summary of its report, the council noted that in the autumn, market expectations were that energy prices would remain at a high level, with “a real concern for energy supply shortages in the winter of 2022/23”.

That the slowdown has been more subdued, it continued was largely due to a significant drop in energy prices compared to the levels seen in late summer 2022, and compared to the market expectations for 2023.

The council now expects Denmark’s GDP growth to slow to 1 percent in 2023 rather than for the economy to shrink by 0.2 percent, as it predicted in the autumn.

In 2024, it expects the growth rate to remain the same as in 2003, with another year of 1 percent GDP growth. In its autumn report it expected weaker growth of 0.6 percent in 2024.

What is the outlook for employment?

In the autumn, the expert group estimated that employment in Denmark would decrease by 100,000 people towards the end of the 2023, with employment in 2024 about 1 percent below the estimated structural level.

Now, instead, it expects employment will fall by just 50,000 people by 2025.

What does the expert group’s outlook mean for interest rates and government spending?

Denmark’s finance minister Nikolai Wammen came in for some gentle criticism, with the experts judging that “the 2023 Finance Act, which was adopted in May, should have been tighter”. The current government’s fiscal policy, it concludes “has not contributed to countering domestic inflationary pressures”.

The experts expect inflation to stay above 2 percent in 2023 and 2024 and not to fall below 2 percent until 2025.

If the government decides to follow the council’s advice, the budget in 2024 will have to be at least as tight, if not tighter than that of 2023.

“Fiscal policy in 2024 should not contribute to increasing demand pressure, rather the opposite,” they write.

The council also questioned the evidence justifying abolishing the Great Prayer Day holiday, which Denmark’s government has claimed will permanently increase the labour supply by 8,500 full time workers.

“The council assumes that the abolition of Great Prayer Day will have a short-term positive effect on the labour supply, while there is no evidence of a long-term effect.”

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