Euro drops on record German inflation

Posted August 19, 2008

The European Central Bank (ECB) considers inflation its biggest enemy. How successfully are they fighting it? Well, with the German PPI up a whopping 9%, they seem to be doing a bang-up job!

by Nina Koeppen, Wall Street Journal

Baltimore — (TFN): German gross domestic product fell 0.5% in the second quarter from the first three months of the year, official data showed earlier this month. Most economists now expect German GDP to grow about, or just below, 2% this year, compared with a calendar-day-adjusted 2.6% in 2007.

But the European Central Bank shouldn’t cut interest rates on weakening real economic activity, given the threats of excessive wage settlements in the area, ZEW’s Mr. Franz said.

Separately, German producer prices jumped 8.9% year-to-year in July, which marks the fastest rise in nearly 27 years, data from the Federal Statistics Office showed Tuesday.

The euro initially rose on the data, before losing its gains. By midmorning in Europe, the euro traded at $1.4659, compared with $1.4668 ahead of the ZEW survey. German government bond futures initially dipped, but quickly recovered losses, with September bunds up 0.28 at 114.69.

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