WRITTEN QUESTION E-1641/00

by Alejandro Agag Longo (PPE-DE) to the Commission

(29 May 2000)

Subject: Inflation in the euro area

The general consensus seems to be that the trend in oil prices on the one hand and the low value of the euro on the other are the main causes of the inflationary pressure which the European Central Bank has sought to counter with the recent interest rate increases. Since it is to be assumed that the Commission bases its analyses and forecasts on accurate data, and in the interests of greater transparency, can the Commission indicate what proportion of the price increases in the European Union is estimated on average to correspond to increasing oil prices and to the imported inflation derived from the continuing depreciation of the euro respectively?

Answer given by Mr Solbes Mira on behalf of the Commission

(7 July 2000)

The latest available harmonised data for consumer prices in the Community refer to April 2000. The annual rate of consumer price inflation in the euro area in April 2000 was 1,9 % (compared to one year earlier). Consumer prices for energy products (i.e. gasoline, electricity, heating oil, etc.) rose by 10,5 % relative to one year earlier. This was partly due to increases in energy taxes in some Member States, notably Germany, and partly to higher oil prices. Consumer expenditure on energy accounts for about 9 % of total consumer expenditure included in the harmonised consumer price index for the euro area. Thus, the mechanical impact in consumer energy prices contributed about 0,9 percentage points (i.e. 9 % x 10,5 %) to the annual rate of increase in consumer prices in April 2000. Core consumer prices excluding energy and seasonal food increased by 1,2 % year-on-year in April 2000.

The main reason for the increase in consumer energy prices has been the increase in oil prices on world markets. Between April 1999 and April 2000, oil prices increased from USD 15,3 per barrel to USD 23,3 per barrel, i.e. by 52 %. Measured in euro, oil prices increased even more, namely from 14,3 per barrel to 24,6 (i.e. by 72 %), due to the depreciation in the exchange rate of the euro against the US dollar. These numbers suggest that movements in world oil prices (measured in US dollar) accounted for between two-thirds and three-fourths of the increase in oil prices measured in euro in the year to April 2000, while movements in the exchange rate accounted for the remainder.

While the depreciation in the euro exchange rate has put upward pressure on import prices, including non-energy import prices, in the euro area, it is not possible to say with precision the extent to which the depreciation may have affected the prices of non-energy goods and services. At this stage, however, it appears that import price increases have not been passed completely through to consumer prices. The prices of non-energy industrial goods, which can be expected to be the most sensitive to changes in the external value of the euro, are still rising at a subdued pace in the euro area with no clear signs of an upward trend (the consumer prices of non-energy industrial goods were up by 0,6 % year-on-year in April 2000, the same as in December 1999).