Eurozone inflation further above target at 2.8 pct

[April 29, 2011]  FRANKFURT, Germany (AP) -- Inflation in the 17 countries that use the euro crept up to 2.8 percent in April, official data showed Friday, keeping pressure on the European Central Bank to raise interest rates again later this year.

The figure published by Eurostat, the EU statistics agency, was up from 2.7 percent in March.

Inflation has remained above the ECB's goal of just under 2 percent, largely due to higher oil and food prices. Although the bank expects the price bump to ease next year, it was concerned enough to start raising rates from record lows, with a quarter point increase to 1.25 percent on April 7.

Economists predict several more such increases by year's end.

Although the key interest rate is not far from its record low, the bank's move has aroused concern that higher borrowing costs may make it harder for financially troubled countries such as Greece and Ireland, which have received bailout loans to avoid default on their debts, and Portugal, which has asked for a bailout.

Those three countries are only a small fraction of the eurozone economy, however, and the bank is looking at strong growth and rising prices in Germany, which makes up 27 percent of eurozone economic output and has a powerful export economy led by autos and industrial machinery.

Higher rates are the central bank's chief tool in fighting inflation, but they can hurt growth if done at the wrong time. The bank must find one rate that works for all the countries of the eurozone, which gave up their independent interest rate policies when they joined the euro.

Other signs for the eurozone remained mixed Friday. Unemployment was steady at 9.9 percent in March. The rate was boosted by underperforming economies in several countries, particularly Spain, the fourth largest euro economy. It suffers from a 20.7 percent joblessness rate in the wake of a collapsed real estate bubble, and 44.6 percent unemployment for people under 25.

Meanwhile, the EU's broad economic sentiment indicator fell significantly, by 2.3 points to 105.1, for the 27-member European union, weighed down by a sharp drop in Britain's services and retail sectors.

The index fell more moderately by 1.1 points to 106.2 for the eurozone, the second decline in a row. It remains at a relatively high level, however, well above its long term averages.

[Associated Press; BY DAVID McHUGH]

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