Euro zone inflation still high

Fri, Mar 30, 2012, 01:00

Inflation in the euro zone slowed slightly in March but not by as much as expected, with rising oil prices hitting consumers' and complicating the European Central Bank's task of reviving growth without firing up the cost of living.

Consumer prices in the 17 nations sharing the euro were up 2.6 per cent in March from a year ago, compared with 2.7 per cent in February, the European Union's statistics office Eurostat said today.

While inflation is below last year's peak of 3 per cent, economists and the ECB had expected prices to fall steadily as the economy has stumbled, offering some relief to households at a time of rising unemployment and sharp spending cuts.

The ECB, which will decide next Wednesday on interest rates, held steady at 1 per cent earlier this month, judging that low rates were crucial to stimulating growth and that underlying pressures on prices seem limited for the time being.

Still, ECB president Mario Draghi said early in March that rising energy prices would likely push inflation above 2 per cent in 2012 "with upside risks prevailing".

That is above the ECB's target of below, but close to 2 per cent, which the Frankfurt-based bank judges to be right for price stability and a healthy economy.

High crude oil prices - up around 16 per cent this year -have fuelled the upward pressure on inflation.

Brent crude rose towards $123 today as investors bet on a tighter market in the world's largest oil consumer, the United States, during the peak summer driving season and on persistent worries of a supply disruption in the Middle East.

Tough sanctions by the West targeting Iran's nuclear programme have curbed oil exports from the Islamic Republic and supply could tighten further from July 1st when a ban on European insurance cover for Iranian oil takes effect.