Eurozone March inflation revised up to 2.7 percent

[April 15, 2011]  LONDON (AP) -- Inflation in the 17 euro countries was higher than first thought during March, official figures showed Friday, to the likely concern of the European Central Bank which has already started lifting borrowing costs to put a lid on rising prices.

Eurostat, the EU's statistics office, said that eurozone consumer prices rose by 2.7 percent in the year to March, its highest level for nearly two-and-a-half-years. March's increase was up from the preliminary estimate of 2.6 percent and markedly higher than the bank's target of keeping inflation "close to but below" 2 percent.

The agency said the main factors behind the increase were transport and housing costs, the former clearly impacted by the sharp rise in energy costs this year in the wake of uprisings in the Arab world.

Friday's figures have reinforced expectations there will be more interest rate rises this year. The euro, however, did not make much headway after the figures were released, trading a little higher at around $1.4460, its gains capped by renewed concerns over Europe's debt crisis, in particular fears that Greece may have to restructure its mountain of debt.

Last week, the European Central Bank raised its benchmark rate by a quarter of a percentage point to 1.25 percent, its first increase in nearly three years, because of concerns of rising inflation rates.

Marc Ostwald, markets strategist at Monument Securities, said rate-setters at the central bank will be particularly worried that the core rate, which strips out such things as energy and tobacco costs, spiked up to 1.5 percent in the year to March from 1.1 percent, largely on the back of higher clothing costs.

"As such a further quarter of a percentage point rate hike from the ECB in June looks pretty much inevitable," Ostwald said.

At his press briefing following the rate increase earlier this month, ECB president Jean-Claude Trichet said the bank would do whatever was necessary to deliver price stability.

The ECB is taking a far more hawkish stand than most of its peers to rising inflation pressures. The U.S. Federal Reserve shows few signs of increasing borrowing costs anytime soon while the Bank of England is not expected to start raising interest rates until August at the earliest even though Britain's inflation rate is running at 4 percent.

One peer that is acting tough is the People's Bank of China, which has already raised interest rates four times since last October, as it tries to bring inflation down. Figures earlier showing Chinese inflation rising to 5.4 percent in the year to march from 4.9 percent in Feb. are expected to prompt further action from the bank.

The theme of rising inflation around the world will continue through Friday as attention turns to U.S. numbers for March. These are expected to show consumer prices rose by 2.6 percent in the year to March, up from the previous month's 2.1 percent.

[Associated Press; By PAN PYLAS]

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