European Inflation Accelerates


European inflation accelerated more than initially estimated in March, reinforcing the European Central Bank's resistance to cutting interest rates even as economic growth cools.

The inflation rate rose to 3.6 percent last month, the highest in almost 16 years, the European Union's statistics office in Luxembourg said today. The March figure is up from 3.3 percent in February and exceeds an estimate of 3.5 percent published on March 31.

Food and energy prices stoked inflation in March, and the euro extended its gains after the report, rising to a record against the dollar. ECB Executive Board member Juergen Stark yesterday said interest rates may not be high enough to contain inflation, while Greek colleague Nicholas Garganas said price pressure ``is more intense than previously foreseen.''

The euro gained 1.1 percent to a record $1.5969 today and was at $1.5958 at 3:05 p.m. in Brussels. At the same time, European government bonds extended declines, with the yield on the German 10-year bund, Europe's benchmark, rising 2 basis points to 3.98 percent. Yields move inversely to bond prices.

Food-price inflation accelerated to 6.2 percent in March from 5.8 percent in February, the highest since Eurostat began the current data series in 1997. Rice climbed to a record $22.67 per 100 pounds today, while wheat, corn and soybeans also have risen to records this year.

Energy-price inflation in the euro area accelerated to 11.2 percent, the highest since May 2006. Crude oil has risen 80 percent in the last 12 months, reaching $114.50 a barrel today.

The surge in energy and food costs has pushed inflation further above the ECB's 2 percent ceiling. The central bank forecasts that inflation will average 2.9 percent this year and 2.1 percent in 2009, according to staff projections published last month. That would make 2009 the 10th year that policy makers would fail to keep inflation below the limit.

In Germany, Europe's largest economy, the inflation rate rose to 3.3 percent last month from 2.9 percent in February, higher than initially estimated. French inflation also accelerated in March, reaching the fastest in at least 12 years.

The impact of commodity prices on inflation isn't limited to Europe. U.S. producer prices rose almost twice as much as forecast last month, according to figures published yesterday. Consumer prices in China climbed 8.3 percent in March, close to the fastest in 11 years.

 


TradingEconomics.com, Bloomberg
4/16/2008 6:45:58 AM