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Euro zone core inflation rise signals higher ECB rates


Euro zone core inflation rise signals higher ECB rates


Inflation in the euro zone rose April, partly due to higher energy costs, but core prices – which do not include fuel and food – also jumped.

The EU’s statistics office Eurostat said consumer prices in the 17 countries using the euro rose 0.6 percent month-on-month. Year-on-year it was up 2.8 percent.

That makes it more likely the European Central Bank will raise interest rates further this year.

Stripping out volatile energy and unprocessed food costs to get to what the European Central Bank calls core inflation, prices rose 0.5 percent month-on-month and 1.8 percent year-on-year, up from 1.5 percent year-on-year in March and 1.1 percent in February.

The ECB raised interest rates in April to 1.25 percent from 1.0 percent citing rising inflationary pressures, and the markets expect it to raise borrowing costs twice more this year, with the next hike most likely in July.

Economists are forecasting headline inflation to keep climbing from their current levels. “We expect headline inflation to rise further in the coming months. We have euro zone inflation peaking at just above three percent in late Q3/early Q4, and have an average of 2.9 percent for 2011,” said Eoin O’Callaghan, economist at BNP Paribas.

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