LAURA SLATTERY and DEREK SCALLY
EURO ZONE inflation accelerated faster than expected in December, taking price rises above the European Central Bank (ECB) target for the first time in two years and prompting speculation about when the central bank will need to consider interest rate increases.
Consumer prices in the euro zone rose by 2.2 per cent last month compared to a year earlier, after increasing 1.9 per cent in the year to November, according to the European Union’s statistics office, Eurostat. This is the highest rate since October 2008.
The jump can be explained by an 8.6 per cent surge in the price of crude oil in December, which took the annual rise in crude oil prices above 15 per cent.
There has also been recent upward pressure on food prices.
The ECB, which aims to keep annual consumer price rises at or just below 2 per cent, forecast last month that euro zone inflation would average about 1.8 per cent in 2011 and 1.5 per cent in 2012.
Most economists do not expect the above-target rate of inflation to trigger price stability actions, such as interest rate increases, in the near future.
Analysts reported a calm market reaction to the data, pointing to the continued low core rate, which is the inflation rate stripped of price rises in energy, food and other categories.
“The core rate is still very weak at 1 per cent ahead of new data next week,” said Antje Praefcke, senior FX analyst with Commerzbank in Frankfurt. She sees no dramatic change likely in the coming year as long as the euro zone capacity rate remains low and jobless rates steady.
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