Euro Zone PPI Jumps Less Than Expected in July

BRUSSELS, Sept 2 (Reuters) - Euro zone producer prices jumped in July on surging oil prices, data showed, but less than expected by markets watching for signs of easing inflationary pressure that would make room for an ECB rate cut.

The EU's statistics office Eurostat said on Tuesday prices at factory gates in the 15 countries using the euro rose 1.1 percent month-on-month for a 9.0 percent annual gain. Economists polled by Reuters had expected a 1.3 percent monthly rise and a 9.1 percent year-on-year increase.

The rise in producer prices was driven mainly by energy costs, up 2.8 percent on the month to stand 24.5 percent higher than a year earlier. In July oil prices hit a record high of $147 a barrel, but have since fallen back to $107 on Tuesday.

Without the impact of volatile energy and construction prices, industrial producer prices rose 0.5 percent month-on-month and 4.3 percent year-on-year. Producer prices are an early indication of inflationary pressure because their increases, unless absorbed by retailers via lower profit margins, eventually translate into higher costs for consumers.

The European Central Bank wants to keep consumer price inflation below, but close to 2 percent, but it was 3.8 percent in August, down from 4.0 percent in July. Such consumer price growth could trigger higher wage demands, starting a wage-price spiral -- something the ECB wants to avoid.

The bank raised interest rates in July by 25 basis points to 4.25 percent to better anchor inflation expectations. It has since left its options open, but many economists expect that with the euro zone economy in a severe slowdown or even possibly in a technical recession, the ECB's next move will be a rate cut, albeit only in 2009.

(Reporting by Jan Strupczewski, editing by Mark John) Keywords: EUROZONE PPI/ jlw COPYRIGHT Copyright Thomson Financial News Limited 2008. All rights reserved.

The copying, republication or redistribution of Thomson Financial News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Financial News.