FRANKFURT, April 24 - German regional inflation data for April onTuesday pointed to rising price pressures in Europe that economists said couldpersuade the European Central Bank to postpone a rate cut for months. Higher food and fuel prices boosted inflation in the German states of Bavaria andBaden-Wuerttemberg by more than expected, which suggests a pan-German annualinflation rate close to three percent in April and perhaps higher in May. Economists had previously expected German inflation to accelerate to 2.7 percent from2.5 percent in March. The German data, along with a rise in Italian inflation reported on Monday, justified theECB's decision to keep its benchmark interest rate at 4.75 percent in the face ofpressure for a cut from politicians and think tanks, they added. "We're gradually getting further away from an environment the ECB would describe ascomfortable. They cannot rely on an economic growth slowdown, which theythemselves describe as only moderate, to push inflation down," said Stephan Rieke, aneconomist at BHF-Bank in Frankfurt. "The environment for interest rate cuts has deteriorated," he added.
ECB REPEATS PRICE RISKS NOT DEAD
European Central Bank council member Klaus Liebscher said on Tuesday that pricerisks had by no means disappeared even though they had become more "symmetrical." Liebscher, governor of the Austrian National Bank, said core inflation was risingtowards two percent, especially as a result of the rise in oil prices, meat prices and thedevelopment of the euro exchange rate, and the risk that these could feed through tohigher wage demands could not be ruled out. "The risks have by no meansdisappeared," Liebscher said, reiterating that the ECB should maintain a "steady-handpolicy" and avoid "hectic 'actionism'". Some analysts said they were reviewing their forecasts for the timing of an ECB ratecut, which many had previously seen coming in May or June. The ECB has also repeated concern that higher inflation figures should not be used bytrade unions as a reason to demand higher wages. The growth picture in the euro zone, while slowing in the wake of the downturn in theUnited States, remained mixed. The Ifo institute's business climate survey for Germany,Europe's largest economy, showed sentiment continued to slide in March. But data on French consumer spending in March released on Tuesday looked buoyant,with spending up 1.3 percent from February, according to the national statistics officeINSEE.
GERMAN STATE DATA POINT TO INFLATION JUMP IN APRIL
Bavaria said its consumer price index in April rose 0.4 percent from March and was up2.8 percent against April 2000. The year-on-year rise was the strongest since the 3.1percent seen in December 1993, the statistics office said. Baden-Wuerttemberg's year-on-year inflation hit a seven-year high in April withconsumer prices up 0.3 percent month-on-month and 2.9 percent year-on-year. The Federal Statistics Office calculates the preliminary pan-German inflation index, duefor release later this week, on the basis of the six states' data. Preliminary consumer price rises reported by 12 Italian cities on Monday pointed to astronger-than-expected rise of 3.1 percent year-on-year in April.
DETAILS SHOW FOOD, FUEL PRICES DROVE INDEX UP
Details from the state data showed higher food and energy prices were the main driversbehind April inflation. The Bavarian statistics office data for April showed food prices up 1.7 percent on themonth and 4.5 percent year-on-year, with seasonal foods up 3.8 percent on the monthand 6.4 percent on the year. Energy costs were up 1.3 percent on the month and 15.6 percent on the year, withheating oil prices up 2.5 percent and 14.0 percent on the month and year, respectively. Motor fuels prices rose 2.3 percent on the month and 8.7 percent on the year, theoffice added.