Irish inflation is lowest in the eurozone

FEARS still persist that the European Central Bank (ECB) will hike interest rates next month despite the turmoil in global financial markets.

This news comes as figures show Ireland had the lowest annual rate of inflation in the European Union last month, according to Eurostat, the statistical office of the EU.

Overall European inflation accelerated to the fastest in more than two years in February, increasing pressure on the ECB to raise interest rates.

This European measure of inflation is different to the consumer price index which is used in Ireland as the European measure does not include mortgage interest.

Inflation in the 17-nation euro region quickened to 2.4% from 2.3% in January — the fastest since October 2008 and exceeded the ECB’s 2% limit for a third month.

In February 2011, the lowest annual inflation rates were seen in Ireland (0.9%), Sweden (1.2%) and France (1.8%), with the highest in Romania (7.6%), Estonia (5.5%) and Bulgaria (4.6%).

Compared with January 2011, annual inflation rose in 15 member states, remained stable in three and fell in eight.

Yesterday, economist at BHF Bank, Mario Jung, said he still thinks the ECB will raise interest rates next month.

“Euro-region inflation will remain above 2%,” he said.

“Japan has increased uncertainty and the global economy could lose some dynamic, but I still expect the ECB to raise borrowing costs next month unless there’s a total catastrophe.”

An increase in ECB interest rates will affect homeowners with tracker and standard variable mortgages.

The ECB signalled earlier this month that it may raise borrowing costs as soon as April to fight price pressures.

However, the aftermath of Japan’s earthquake and tsunami has clouded global growth prospects and eroded investor confidence.

The ECB has forecast eurozone inflation to average about 2.3% this year and 1.7% in 2012. Policy makers aim to keep annual gains in consumer prices just below 2% over the medium term.

ECB council member Ewald Nowotny said that it’s “too early” for any conclusion on how the Japanese disaster may affect officials’ resolve to raise the benchmark interest rate from a record low of 1%.

Meanwhile, the main components with the highest annual rates in February were transport (5.7%), housing (4.9%) and alcohol and tobacco (3.5%), while the lowest annual rates were observed for clothing (-2.6%), communications (-0.4%) and recreation and culture (0.0%).