Euro zone inflation remained at a record high in February, the European Union’s statistics office estimated on Monday, ahead of the European Central Bank’s rate meeting and new growth and inflation forecasts on Thursday.
Consumer prices in the 15 countries using the euro rose 3.2% year-on-year last month, the same as in January and in line with market consensus, Eurostat said. Some economists had expected 3.3%. The reading is the highest since measurements for the euro zone began in January 1997. The estimate does not contain a month-on-month figure or a detailed breakdown, but economists have said inflation is being driven mainly by food and energy prices.
The European Central Bank wants to keep inflation just below 2%, but has refrained from raising interest rates to curb price growth, because it believes the inflation surge is temporary, especially as economic growth is slowing. But fast price rises are also making it difficult for the bank to cut interest rates even though the European Commission expects economic expansion to slow from 2.7% in 2007 to 1.8% this year, below potential growth. The bank’s fight against inflation is likely to be made easier by a strong euro, which hit record highs against the US dollar at above $1.52 on Friday, and against the British pound -- the two main trading currencies for the euro zone.
The strong euro also helps offset some of the negative effects on consumer spending power of high oil prices, which on Monday were $101.59 per barrel -- just below the record high of $103.05 set on Friday. But the euro’s exchange rate is a drag on euro zone exports, alarming European companies which on Friday called on euro zone finance ministers and the ECB to tackle the issue when they meet for a monthly discussion of the economy later on Monday. (Reuters)