European inflation surges

European inflation accelerated more than previously estimated to the fastest in more than two years in March, led by surging energy costs, adding pressure on the European Central Bank (ECB) to keep raising interest rates.

Inflation in the 17-nation euro region quickened to 2.7 per cent from 2.4 per cent in February, the European Union's statistics office in Luxembourg said today.

This is higher than an initial March estimate of 2.6 per cent and the fastest since October 2008. Euro area exports rose 1.6 per cent in February from the previous month, a separate report showed.

The ECB, which aims to keep inflation just below 2 per cent, increased borrowing costs for the first time in almost three years on April 7th to keep increasing price pressures from feeding into wage demands as the economy strengthens.

In Germany, unemployment has dropped to the lowest in almost two decades and specialty chemicals maker Lanxess boosted prices this month to offset higher raw-material costs.

"The ECB's fear that an upswing in headline inflation will sooner or later seep through into core inflation is threatening to become reality," said Peter Vanden Houte, an economist at ING Groep in Brussels. "Two more rate hikes this year are already a done deal."

Euro region core inflation accelerated to 1.3 per cent in March from 1 per cent in the previous month, the statistics office said. That is the fastest since August 2009. The cost of energy jumped 13 per cent from a year earlier, while alcohol and tobacco was 3.6 per cent more expensive.

Crude-oil prices have surged 18 per cent this year after unrest in North Africa and the Middle East curbed supplies.

In China, inflation quickened in March to the fastest pace since 2008, the statistics bureau said today.

Bloomberg