Tags: Euro | Zone | Inflation | Jumps | Rate | Hikes | Loom

Euro Zone Inflation Jumps as More Rate Hikes Loom

Friday, 15 Apr 2011 07:21 AM

Inflation in the euro zone climbed higher than expected in March to 2.7 percent year-on-year, statistics published on Friday showed, adding to the case for further rises in interest rates.

High inflation, spurred by commodity and energy prices, prompted the euro zone's central bank to lift interest rates for the first time since the 2008 financial crisis last week and another rise is expected by July.

The European Union's statistics office, Eurostat estimated that inflation in the 17-country euro area jumped to 2.7 percent in March, beyond its initial 2.6 percent forecast and far above the 1.6 percent recorded a year earlier.

EU officials put the surge in prices down chiefly to the rising cost of fuel for transport and heating oil. The ECB targets inflation of below, but close to 2 percent and headline price growth has been above that figure since December.

Bank policymakers have stuck to a hawkish message on inflation since last week's meeting and analysts said the higher March numbers were another sign that the cost of borrowing would rise further.

"Core inflation has actually gone up and this is a clear sign that the rate hike didn't come too early and that we will clearly see more," said Carsten Brzeski, an economist with ING. "We would expect at least two more rate hikes this year."

His remarks were echoed elsewhere. "It probably gives the market a bit more confidence that the ECB will raise rates for the right reason," said Peter Chatwell, an economist with Credit Agricole.

DOUBLE RISK

Bank policymakers will also have to weigh concerns that further rises will damage the hopes of recovery for the euro zone's weaker member states struggling with high debt.

Ireland, where homeowners are likely to struggle with higher mortgage payments as official borrowing costs rise, recorded the lowest annual rate of inflation — 1.2 percent. Estonia, on the other hand, had price rises of 5.1 percent year-on-year.

Inflation in March in the wider European Union was higher, at 3.1 percent, compared to 2 percent a year earlier as countries like Romania registered an 8-percent jump in prices.

Low interest rates helped inflate a property bubble in Greece, Spain, Ireland and Portugal, where many home owners borrowed heavily on the strength of cheap credit.

The ECB now finds itself sandwiched between the risk of and heaping further pain on those homeowners and the banks that lent them to buy and the threat of runaway prices.

© 2017 Thomson/Reuters. All rights reserved.

 
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Inflation in the euro zone climbed higher than expected in March to 2.7 percent year-on-year, statistics published on Friday showed, adding to the case for further rises in interest rates. High inflation, spurred by commodity and energy prices, prompted the euro zone's...
Euro,Zone,Inflation,Jumps,Rate,Hikes,Loom
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2011-21-15
Friday, 15 Apr 2011 07:21 AM
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