Price growth at the factory gate in the Euro-zone is anticipated to accelerate even faster in May, as Eurostat is anticipated to report a 0.9 percent rise in the producer price index (PPI). Furthermore, PPI is forecasted to surge 6.7 percent in May from a year earlier, the sharpest increase on record.

Indeed, we’ve already seen PPI in Germany (the Euro-zone’s largest economy) jump on the back of record energy costs, and the news will only add to European Central Bank President Jean-Claude Trichet’s already-hawkish tone. Indeed, estimates for Euro-zone CPI have rocketed to a fresh 16-year high of 4.0%, and as a result, the markets are widely expecting the ECB to increase interest rates by 25bps to 4.25 percent on Thursday. This move would mark the first hike since last summer, but given recent commentary, there are indications that this may be a one-and-done deal. Nevertheless, European leaders such as French President Nicolas Sarkozy and German Finance Minister Peer Steinbrueck are staunchly against any sort of rate increase, as restrictive monetary policy threatens to slow expansion in their respective economies to a crawl.

source: dailyfx.com