BEIJING, June 21 (Xinhuanet) -- Producer prices in Germany, Europe's largest economy, rose for a fourth month in May as increasing global demand allowed companies including ThyssenKrupp AG - Germany's biggest steelmaker - to pass on higher energy costs, according to Monday's China Daily.

    Prices for goods ranging from toys to machine tools rose by 0.5 per cent from April, when they increased by 0.4 per cent, the Federal Statistics Office in Wiesbaden said.

    Economists expected a gain of 0.4 per cent, the median of 24 forecasts in a survey showed. From a year ago, prices have increased by 1.6 per cent.

    "It's obviously energy driven," said Stephen Webster, an economist at 4Cast Ltd in London.

    "But as far as consumer prices are concerned, the figures have already happened. Consumer inflation should stay around 2 per cent."

    Inflation accelerated to a two-year high of 2 per cent in May as oil prices surged to a record, reaching US$42.33 a barrel on June 1 on the New York Mercantile Exchange.

    Germany's economic recovery from last year's contraction has relied on exports, which increased the most in 20 months in April.

    The US economy may expand at the fastest pace in two decades in 2004 and the 12-nation euro region will probably grow at more than three times last year's pace, the Organization for Economic Co-operation and Development predicts.

    The German economy expanded by 0.4 per cent in the first three months of this year, accelerating for a third quarter.

    The VDMA plant and machinery industry association last week doubled its production forecast for this year.

    ThyssenKrupp said on Tuesday it would increase prices in July more than it said earlier as demand in Asia grows.

    Steel prices are currently at the highest levels since 1989. In May, rolled steel prices rose by 1.4 per cent from April and are 17.6 per cent higher than prices a year ago, according to the Statistics Office.

    Fuel prices rose by 11.6 per cent compared with a year ago, the office said.

    Excluding energy, producer price inflation would have been 1 per cent, it said.

    Evidence that a global recovery is gaining momentum and the resulting pickup in inflation have boosted investor expectations of higher interest rates this year.

    The US Federal Reserve will at least double its 1 per cent interest-rate target for overnight loans between banks by the end of the year, a majority of economists at Wall Street's largest bond-trading firms said last week.

    The European Central Bank (ECB) this month left its key rate unchanged at 2 per cent, although an increasing number of investors predict a rate increase before the end of the year, futures trading suggests.

    The implied rate on the Euribor three-month rate futures contract for December delivery has risen to 2.46 per cent, up from 2.10 per cent at the start of April.

    ECB President Jean-Claude Trichet says the bank is being "vigilant regarding the second-round effects of the increase in the price of oil" and "medium-term inflation will be in line with our definition of price stability."

    The ECB raised its forecast for inflation this year to 2.1 per cent. The bank aims to keep inflation below 2 per cent. It left its benchmark interest rate at 2 per cent at its recent monthly rate-setting meeting.

    "People often start to worry when oil prices are rising, but that can also change again quickly," said Lutz Karpowitz, an economist at Bayerische Landesbank Girozentrale in Munich.

    "There will be a hump in inflation due to oil, but at the moment there aren't any real signs of second-round effects."

    (China Daily)