Sept. 23 (Bloomberg) -- Import price inflation in Germany, Europe's largest economy, held steady at the fastest pace in more than four years in August as oil prices surged to a record.

Import prices increased 4.7 percent from a year earlier, the same pace as in July which was the fastest since January 2001, the Federal Statistics Office in Wiesbaden said in a faxed statement today. Economists expected prices to gain 4.4 percent, the median of 15 forecasts in a Bloomberg survey said. From a July, prices rose 0.9 percent.

The record cost of oil, which Germany must import, is diminishing shoppers' purchasing power as companies such as Volkswagen AG eliminate jobs, undercutting consumer demand in the country. Hurricane Rita, due to hit the U.S. tomorrow, is expected to push energy costs up further by knocking out production.

``Energy prices will definitely stay high, as well as import price inflation,'' said Henrik Gullberg, an economist at 4Cast Ltd. in London. ``The key is whether they feed through to the consumer. In the current environment, there's not much room.''

A barrel of crude for November delivery cost $66.24 on the New York Mercantile Exchange at 7:57 a.m. in Frankfurt. That compares with an Aug. 30 record $70.85 cents. Euro-based raw materials costs increased 4.2 percent in August, according to the HWWI institute in Hamburg.

Flights, Gasoline

Excluding oil, import prices gained 0.8 percent in the year. Iron, tomatoes and bananas contributed to the rising cost of imports in the year while the price of computers, scrap metal and beef declined in the period.

Deutsche Lufthansa AG, Europe's second-largest airline, plans to raise fuel surcharges as much as 41 percent on flights. Gasoline prices in Germany reached a record $6.42 a gallon this month, AA Motoring Trust Trading Ltd. data shows.

Economists still expect consumer inflation to have accelerated to 2.3 percent in September, around the half the rate of import price gains, the median of 30 forecasts in a Bloomberg survey showed. State statistics offices start reporting consumer prices later today.

Germany's 11.6 percent jobless rate is undermining consumption at home, making it harder for companies to charge customers more. Volkswagen, Europe's largest carmaker, said on Sept. 5 that a reduction of several thousand jobs was needed in its western German workforce of 103,000.

With domestic demand struggling to pick up and oil prices threatening to slow global growth, the International Monetary Fund this week cut its growth forecast for Germany's economy by 0.7 percentage points to 1.2 percent next year. That's less than the 1.8 percent rate of expansion for the 12 nations sharing the euro.

ECB Dilemma

Oil costs are both hurting growth and bolstering consumer prices. That creates a dilemma for the European Central Bank, which sets interest rates for the 12 countries sharing the euro and tries to foster economic expansion while containing inflation.

``All in all, I would say that after the recent oil price increases the risks to inflation have increased and therefore I think we should continue to remain vigilant, said ECB council member Nicholas Garganas in an interview Sept. 21. ``Rates are appropriate for growth.''

The ECB has set its benchmark rate at a six-decade low 2 percent for more than two years. Investors don't expect the ECB to change it this year, futures trading shows. The rate on the December Euribor interest-rate future was at 2.16 percent at yesterday's close.

The contracts settle to the three-month euro area inter-bank offered rate for the euro, which has averaged 15 basis points more than the ECB's key rate since the currency's launch in 1999. The Euribor three-month money market rate was 2.14 percent.

To contact the reporter on this story: Brian Swint in Frankfurt at bswint@bloomberg.net.

Last Updated: September 23, 2005 02:02 EDT