ANNUAL REPORT 2008 - Polymer Bank Notes of the World

Chart 24 Contributions to HICP inflationfrom main components(annual percentage point contributions; monthly data)4.54.03.53.02.52.01.51.00.50.0-0.5servicesnon-energy industrial goodsprocessed foodunprocessed foodenergyoverall index2004 2005 2006 20072008-0.5Source: Eurostat.Note: Due to rounding errors, the contributions do not add upexactly to the overall index.price inflation reached 6.1% on average in 2008,as compared with 2.8% in 2007. By contrast,unprocessed food prices rose by 3.5% in 2008compared with 3.0% in 2007.Excluding energy and food (processed andunprocessed), HICP inflation was largelystable over 2008. The impact of notably higherinput prices arising from high commodityprices (energy and non-energy) was offset bythe dampening effect of lower import pricepressures, in the context of an appreciation ofthe euro until the middle of the year and stronginternational competition, as well as by thefavourable base effect relating to the fact that the3 percentage point increase in VAT introducedin Germany on 1 January 2007 started to dropout of the annual inflation rates at the beginningof 2008.4.54.03.53.02.52.01.51.00.50.0Non-energy industrial goods prices rose by0.8% in 2008, showing a slight decelerationcompared with the rate of 1.0% recorded in2007. Despite the input cost pressures signalledby domestic producers and the high utilisationrate of manufacturing capacity, non-energyindustrial goods price inflation moderated inthe first half of 2008. It rebounded somewhatfrom July, on account of, among other things,the impact of the abrupt appreciation of theUS dollar observed in the second half of the yearand of some exceptional seasonal discountingwhich affected textile prices in the summer.Services price inflation was broadly stablethroughout much of 2008, although remainingat relatively elevated levels of around 2.5%,following a marked increase in 2007. Whilethe indirect impact of price increases in globalcommodities, especially oil and food, may havecontributed to a persistent upward effect onsome services components, such as transportservices and restaurants and cafés, this wascounterbalanced to a large extent by pronounceddeclines in other services components, such ascommunications.HIGHER AVERAGE PRODUCER PRICE INFLATION IN2008 BUT PRONOUNCED DOWNWARD PRESSURESTOWARDS THE END OF THE YEARSupply chain price pressures reached extremelyelevated levels in late spring, against thebackground of the high commodity priceinflation, exacerbating concerns about inflation.However, these pressures receded steadily inthe course of the summer, and then at a morepronounced pace in the last few months of theyear – with falls in index prices (excludingenergy and construction) from October – ascommodity prices started falling rapidly andpressures on factors of production (both capitaland labour) abated.The annual rate of change in industrial producerprices (excluding construction) in the euro areawas 6.2% on average in 2008, considerablyhigher than in 2007 (2.8%). After reaching ahistorical peak of 9.2% in July 2008, the yearon-yearrate of producer price inflation declined58 ECBAnnual Report2008