Eurozone producer prices hit record as inflationary pressures widen beyond energy

Eurozone producer prices have surged at the fastest pace since the launch of the single currency more than two decades ago, prompting central bankers to warn that inflationary pressures are becoming too broad as well as too high.

Prices charged by industrial producers in the 19 countries that share the euro rose 37.2 per cent in the year to April, up from March’s all-time high of 36.9 per cent, with wholesale prices of consumer goods such as food and drink contributing to the surge, according to Eurostat data released on Thursday.

The figures were published as European Central Bank policymakers prepared to meet in Amsterdam next week, when they are expected to outline plans to raise interest rates in July for the first time in more than a decade in an effort to bring consumer price inflation back to their 2 per cent target.

The surge in producer prices came despite a slowdown in the growth of wholesale energy prices, in a sign that inflationary pressures are broadening beyond the sharp increases in oil and gas costs triggered by the fallout from Russia’s invasion of Ukraine in February.

“If you look at inflation rates it has been broadening beyond energy for quite a while,” said Oliver Rakau, chief German economist at Oxford Economics.

“There is always a chain of events and there’s no denying that higher energy and commodity prices will feed through into other products, like food and drink prices, and that could lead to higher restaurant prices, which pushes up services inflation,” he said.

Factory gate prices for non-durable consumer goods, such as food and drink, rose 11.2 per cent — their first-ever double-digit percentage increase. Makers of durable consumer goods, such as furniture and cars, sold them for 8.5 per cent more than a year earlier. Despite a slowdown in wholesale energy prices, they still increased 99.2 per cent in the year to April.

François Villeroy de Galhau, French central bank governor and a member of the ECB governing council, signalled it was gearing up to raise rates to tackle soaring prices. “Inflation is not only too high, but also too broad. This requires a normalisation of monetary policy,” Villeroy said in a speech on Thursday.

Some ECB council members have said it could follow in the footsteps of the US Federal Reserve and raise its policy rate by a half percentage point in July, especially if core consumer inflation — excluding energy and food prices — kept rising faster than expected.

In the year to May, eurozone consumer prices rose by a record 8.1 per cent, while core inflation also accelerated to 3.8 per cent — both faster than most economists expected.

Higher factory gate inflation is likely to feed, at least partially, into increased consumer prices, as some businesses pass on their costs to shoppers — although the link between the two is not always clear.