Tags: Europe | Economy | eurozone | inflation

Eurozone Inflation Unexpectedly Rises to 2.7%, Hurting Rate-Cut Hopes

Friday, 28 Sep 2012 07:53 AM

Inflation in the 17 countries that use the euro rose unexpectedly to a six-month high in September, official figures showed Friday, weakening expectations of another interest rate cut from the European Central Bank.

Eurostat, the EU's statistics office, said prices in the eurozone were 2.7 percent higher in September than the year before, up from the previous month's 2.6 percent rate. The consensus in the markets was for a decline to 2.4 percent.

No reasons for the increase were provided by Eurostat, as the figure was only a preliminary estimate, though higher energy costs are likely to blame. Further details will emerge next month when the statistics office publishes a more comprehensive report.

James Ashley, an economist at RBC Capital Markets, noted that a sales taxes in Spain and changes in the way Italian prices are measured could also have contributed to the increase.

The surprise increase will likely provide ECB rate-setters with another headache in the run-up to next Thursday's monthly policy meeting. While trying to stick to its mandate of keeping inflation just below 2 percent, the ECB has had to contend with a faltering eurozone economy and turbulent financial markets.

Six eurozone economies are in recession and more are expected to follow in the coming months. The eurozone economy has struggled recently as the region's debt crisis has knocked investor and consumer confidence and forced governments to enact tough austerity measures.

Many think that lower interest rates would help shore up the eurozone economy. A number of economists have been forecasting another rate cut this year from the current record low of 0.75 percent.

"We continue to see the ECB leaving policy rates unchanged at next week's meeting — a view that is (at the margin) reinforced by this latest increase in inflation," said RBC's Ashley.

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Inflation in the 17 countries that use the euro rose unexpectedly to a six-month high in September, official figures showed Friday, weakening expectations of another interest rate cut from the European Central Bank.Eurostat, the EU's statistics office, said prices in the...
Europe,Economy,eurozone,inflation
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2012-53-28
Friday, 28 Sep 2012 07:53 AM
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