Europe Economy

Euro Zone Inflation at New Record, Sentiment Eases


Euro zone inflation jumped to new record highs in March while economic sentiment eased for the 10th month in a row, data showed on Monday, deepening the European Central Bank's interest rate dilemma.  

Inflation in the 15 countries using the euro accelerated to 3.5 percent year-on-year in March from 3.3 percent in February, European Union statistics office Eurostat said.

The ECB wants inflation to be below, but close to 2 percent and is expecting a temporary "hump" in price rises. But it also faces slowing growth and markets expect it to cut interest rates later this year from the current 4.0 percent.

The Eurostat estimate does not contain month-on-month data or a detailed breakdown, but Belgian and German inflation numbers released on Friday suggest the rise was fuelled by energy as oil hit a record $111.8 per barrel.

Euro Zone Prices Hit Record High

Economists polled by Reuters before the Friday data from Germany and Belgium had expected price growth to stay unchanged at 3.3 percent. 

After Friday, several economists had changed their March inflation forecasts to 3.5 percent.

The ECB has been consistently playing down expectations of a near-term rate cut, saying it was important to anchor inflation expectations at a low level, especially amid the current financial market turmoil.

A monthly European Commission survey showed that indeed, for the first time in five months, consumer inflation expectations eased -- to 26 points from 28. Selling price expectations among producers fell to 13 points from 14, down for the first time in six months.

Yet economic sentiment in the euro zone deteriorated further, the Commission survey showed, with the index falling to 99.6 points from an upwardly revised 100.2, mainly as a result of weaker sentiment in construction.

Consumer optimism remained unchanged at -12 points, retail was unchanged at 1 point, industry unchanged at 0 and sentiment in the services sector eased to 9 from 10 points.