Inflation rate rise fastest in 2½ years

EUROPEAN inflation accelerated at the fastest rate in two-and-a-half years in April, increasing pressure on the European Central Bank to raise borrowing costs further.

Consumer-price growth in the 17-nation eurozone quickened to 2.8% from 2.7% in March, the European Union’s statistics office in Luxembourg said.

That is in line with an initial estimate on April 29 and the fastest since October 2008. Eurozone exports rose a seasonally adjusted 1.1% in March from February, a separate report showed.

The eurozone economy expanded at a faster pace than economists forecast in the first quarter, giving companies room to pass on surging commodity costs.

ECB president Jean- Claude Trichet said on May 6 it’s important to remain “extremely alert” on price developments after policymakers last month raised the benchmark interest rate by 25 basis points to 1.25%, the first rise in almost three years.

“Inflation data and the strong eurozone gross domestic product growth, increase the risk that the ECB could tighten interest rates more aggressively,” said Howard Archer, chief European economist at IHS Global Insight in London. “July remains the most likely choice for the next ECB rate hike.”

The European Commission on May 13 raised its inflation forecast for this year to 2.6% from a previously projected 2.2%.

Eurozone core inflation, which excludes volatile items such as food and energy, accelerated to 1.6% in April from 1.3% in the previous month, the statistics office said. That’s the fastest since April 2009.

Crude oil prices have increased 7.9% this year, breaching $100 a barrel in February for the first time in more than two years.

With governments from Spain to Ireland struggling to reduce their budget deficits, Trichet signalled earlier this month that policymakers will keep borrowing costs steady in June.

ECB executive board member Juergen Stark said on May 13 that the bank had indicated a “gradual rise in rates”, depending “on the situation, on the basis of incoming data”.

The eurozone economy is showing some signs of cooling after expanding 0.8% in the first quarter from the previous three months. Economic confidence weakened in April and investors also grew less optimistic this month.

In Germany, Europe’s largest economy, sentiment of both executives and investors declined in April.