Economic Data Produces Mixed Messages in Germany

Producer prices in Germany surged in July to the highest point in nearly three decades, the country's statistics office said Tuesday. But that didn't stop investor confidence from rebounding.

Annual producer prices in Europe's biggest economy climbed by 8.9 percent in July to record the fastest rise since October 1981 with the increase coming amid signs of slumping European economic growth, Germany's Federal Statistics Office said Tuesday, Aug. 19.

In June, producer prices, which are considered to be an indicator of inflationary trends, had risen by an annual 6.7 percent.

The European Central Bak raised rates by 25 basis points to 4.25 percent last month to help ward off resurgent inflation fuelled by high energy and food prices.

Annual energy prices jumped 24.5 percent in July, the German statistics office said.

The latest German price data underscores the dilemma facing the ECB as it faces up to renewed inflationary pressures at a time when the global credit crunch and rising consumer prices are undercutting world economic growth.

But analysts say with the ECB continuing to emphasize the importance of fighting inflation, Tuesday's jump in producer prices is likely to make it difficult for the Frankfurt-based bank to ease monetary policy to help shore up growth.

Investors returning to markets

Meanwhile, German investor confidence rebounded in August, a key indicator released Tuesday showed, despite concerns about the outlook for Europe's biggest economy and volatile financial markets.

Drawn up by the Mannheim-based Centre for European Economic Research, the ZEW index for this month posted a surprise 8.4-point increase to minus 55.5 points.

Analysts had predicted that the index would fall to minus 62 points in August. The ZEW July index dropped by 11.5 points to minus 63.9 points in July.

The ZEW indicator is the first of Europe's leading monthly sentiment measures to be published for August.

The publication of the ZEW index follows data released last week showing German economic growth contracting by 0.5 percent in the second quarter amid fears that Europe could be edging its way towards a recession.

But releasing the survey, ZEW president Wolfgang Franz said: "The financial market experts have for good reason not been impressed by the negative gross domestic product growth rate in the second quarter of 2008.

"Overall, they reckon with a weaker, but all in all robust economic development and rightly do not fear a recession," he said.