Investor Alert

June 20, 2008, 6:08 a.m. EDT

German wholesale prices climb 6% in May

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By Roman Kessler

FRANKFURT (MarketWatch) -- German producer price inflation accelerated to its fastest pace in two years in May, driven by soaring energy prices, the Federal Statistics Office Destatis said Friday.

The producer price index, which measures prices at the factory gate, gained 1.0% on the month and rose 6.0% on the year, slightly above expectations.

The "reading indicates once again that there is enormous pressure in the inflation pipeline, since energy and food prices have been soaring," said UniCredit economist Andreas Rees in Munich.

"According to our estimates, producer prices might jump to nearly 7% (year-on-year) in June, thereby hitting their highest level since spring 1982," said Rees.

Economists in a Dow Jones Newswires survey had forecast a rise of 0.9% on the month, and an increase of 5.8% on the year.

In April, PPI rose 1.1% on the month and 5.2% on the year.

Rising producer prices are also a concern for the European Central Bank, Steubing AG's brockerage in Frankfurt said in a research note, as companies may pass on higher production costs to consumers.

"Companies such as ... BASF, Leoni, Continental in Germany all indicated that they are able to pass on inflated input costs. BASF for example announced it is to lift prices by some 20.0 % across the board," Steubing's brockerage said.

The statistics office said energy-related items in the index were the strongest price advancers and rose 15% in the twelve months to May 2008.

Stripped of energy prices, May's producer price index rose only 2.9% on the year, slightly more than 2.7% in April, the office said.

Companies are feeling the pinch of rising electricity prices, with an increase of 11.5% year-on-year, while households paid only 5.1% more during that time.

Gas prices for companies climbed by 11.8% from a year earlier, while household gas prices rose 4.7%.

Statistics Office Web site: www.destatis.de

-Contact: 201-938-5400

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