Tags: Europe Inflation Accelerates More Than Forecast

Europe's Inflation Increases More Than Forecast

Tuesday, 04 Jan 2011 07:28 AM

Consumer prices in the 16 countries that used the euro at the end of 2010 rose by their largest amount for over two years during December, and inflation is now running above the European Central Bank's target, official figures showed Tuesday.

Eurostat, the EU's statistics office, said consumer price inflation jumped 2.2 percent in the year to December, its highest level since October 2008. The increase from November's 1.9 percent rate was markedly ahead of expectations — the consensus in the markets was for a far more modest increase to 2 percent.

A more detailed breakdown of the figures will be published later this month, but all indications are that higher energy and commodity costs are likely to have been behind the bigger than anticipated increase.

Whatever reason lies behind the rise, December's rate means inflation in the eurozone ended 2010 above the central bank's target of keeping inflation "below, but close to" 2 percent for the first time since November 2008.

That is likely to stoke fears at the central bank that inflationary pressures are increasing in the eurozone at a time when a number of countries are embarking on deep austerity programs in an attempt to appease the bond markets that they are getting a handle on their debt burdens.

The ECB meets next week to decide on interest rates. Under more normal circumstances, the increase in December could well generate jitters that an interest rate increase would be in the offing.

But given that many eurozone countries are barely growing while introducing spending cuts and tax increases. the unanimous view among ECB watchers is that the central bank will keep its main interest rate unchanged at the record low of 1 percent.

"Given ongoing tensions in the sovereign debt markets, the ECB is unlikely to feel any immediate pressure to hike rates," said Frederik Ducrozet, eurozone economist at Credit Agricole.

The eurozone expanded to 17 countries on Jan 1. when Estonia joined the single currency bloc.

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Consumer prices in the 16 countries that used the euro at the end of 2010 rose by their largest amount for over two years during December, and inflation is now running above the European Central Bank's target, official figures showed Tuesday. Eurostat, the EU's statistics...
Europe Inflation Accelerates More Than Forecast
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2011-28-04
Tuesday, 04 Jan 2011 07:28 AM
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