UPDATE 1-Euro zone Feb PPI jumps as ECB rate hike looms

* Euro zone factory gate prices spike on energy costs

* Higher PPI to add to ECB inflation concerns

* ECB tipped to raise rates several times this year

(Adds economists’ comments)

By Jan Strupczewski

BRUSSELS, April 4 (Reuters) – Surging energy costs drove
euro zone factory gate prices higher in February, likely setting
the seal on the European Central Bank’s first interest rate rise
since 2008 later this week.

The European Union’s statistics office Eurostat said on
Monday producer prices in the 17 countries using the euro rose
0.8 percent month-on-month for a 6.6 percent year-on-year
increase, signalling growing pressures early in the inflation

Economists polled by Reuters had expected a 0.7 percent
monthly gain and a 6.7 percent annual rise in producer prices,
which are often a precursor to changes in consumer prices.

“The further spike up … will reinforce the ECB’s concern
that high energy and commodity prices are exerting serious
inflationary pressures lower down the supply chain,” said Howard
Archer, economist at IHS Global Insight.

Energy prices rose 1.2 percent on the month for a 12.8
percent annual increase, Eurostat said.

It revised down gains in factory gate prices for January to
1.3 percent month-on-month from 1.5 percent and to 5.9 percent
year-on-year from 6.1 percent.

Producer price increases, unless absorbed by intermediaries
and retailers, translate into higher consumer prices, annual
growth of which the ECB aims to restrict to below but close to 2
percent in the medium term.

The bank is widely expected to raise interest rates on
Thursday for the first time since October 2008.

Consumer price inflation was 2.6 percent in March, Eurostat
estimated last week, up from 2.4 percent in February.

According to an indicator designed to predict inflation
trends from the Economic Cycle Research Institute, inflationary
pressures in the euro zone reached a 29-month high in February.


“The ECB hopes by sending out the message that it will be
tough on inflation it can contain households’ inflation
expectations and companies’ pricing expectations,” Archer said.

“(It would) thereby limit the risks that the current
inflation spike up resulting from high energy and commodity
prices will feed through to have significant second-round
inflationary effects.”

Economists expect consumer inflation will remain above the
ECB target in 2011 and that an April 7 rate rise from a record
low of 1 percent could be just the first of several this year.

“We are now leaning towards the view that the ECB will hike
interest rates by a further 25 basis points in both the third
and the fourth quarters, taking them up to 1.75 percent by the
end of the year,” Archer said.

(Reporting by Jan Strupczewski, editing by Rex Merrifield,
John Stonestreet)

UPDATE 1-Euro zone Feb PPI jumps as ECB rate hike looms