European Inflation Remains at Record 3.2% in February

European inflation remained last month at the highest level since the euro's debut, keeping pressure on the European Central Bank to leave interest rates on hold even as economic growth cools., Bloomberg 3/3/2008 4:14:30 PM

Consumer-price growth in the euro area was 3.2 percent in February, the European Union's statistics office in Luxembourg said today. That matched January's rate, the highest since the euro was introduced in 1999, and was in line with the median forecast of 41 economists surveyed by Bloomberg News.

ECB governing council member Axel Weber said last week investors are ``clearly'' underestimating the scale of the threat from inflation after the prices of foods including wheat, soybeans and corn as well as crude oil rose to records. That may keep inflation above the ECB's 2 percent ceiling for a ninth year.

The European Commission on Feb. 21 raised its 2008 inflation forecast to 2.6 percent from 2.1 percent, which would be the fastest full-year average since the euro was introduced. The Brussels-based commission also cut its forecast for economic growth to 1.8 percent, 0.4 percentage point below the pace predicted in November and the weakest since 2005.

The euro, which reached at record $1.5239 against the dollar on Feb. 29, traded today to $1.5163.

The ECB will publish revised growth and inflation forecasts on March 6, when policy makers at the central bank hold their next meeting on interest rates. All 54 economists surveyed by Bloomberg News say the central bank will keep its benchmark rate at 4 percent, where it has been since June.

Investors have increased their bets on ECB rate cuts this year as the euro's 15 percent appreciation against the dollar over the past 12 months threatens to curb growth.

The implied rate on the Euribor interest-rate futures contract maturing in December dropped 8 basis points, or 0.08 percentage point, to 3.50 percent on Feb. 29. It extended that decline today, slipping to 3.48 percent.

The inflation figure published today is a first estimate by the statistics office, which will publish a final figure on March 14.

European Inflation Remains at Record 3.2% in February