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Energy Costs Drive Euro-Zone Producer Prices Higher

Energy Costs Drive Euro-Zone Producer Prices Higher

Benjamin Spier, Technical Strategist

THE TAKEAWAY: Energy costs drive Euro-zone producer prices higher in August -> ECB interest rate decision partially based on inflation -> Euro trading slightly higher in today’s session

Input costs for Euro-zone industrial production were up the most in 6 months as energy prices soared in August. The Euro-zone Producer Prices Index was up 0.9% in August, beating expectations for a 0.6% rise, and higher than July’s revised 0.3% rise in input prices. Producer prices were 2.7% higher than August 2011, according to Eurostat.

Excluding energy costs, producer prices were only up 0.3%, while energy prices rose 2.4% in August in the Euro-zone. Finland saw the highest rise in producer prices, as costs were up 1.7%.

Euro-zone annual inflation for consumers was up 2.6% in August, beating the European Central Bank’s 2.0% target inflation. Higher costs are likely to discourage the ECB from cutting the interest rate in their upcoming meeting, and cutting the interest rate would be Euro negative.

However, the higher than expected producer prices did not have a significant effect on the Euro. $EURUSD temporarily dropped below 1.2900 earlier in the European session before climbing above the key level. Resistance could now be provided by the key 1.3000 level.

EURUSD 15-minute: October 2, 2012

Energy_Costs_Drive_Euro-Zone_Producer_Prices_Higher_body_eurusd_daily_chart.png, Energy Costs Drive Euro-Zone Producer Prices Higher

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