Eurozone inflation was higher than expected in December, exceeding the European Central Bank's target for the first time in two years, but economists believe the bank will keep interest rates unchanged well into 2011. The European Union's statistics office Eurostat estimated that prices in the 16 countries that shared the euro currency in December rose 2.2 percent year-on-year, up from 1.9 percent in November.
It was highest year-on-year rate since October 2008, when it came in at 3.2 percent. Economists polled by Reuters had expected inflation of 2.0 percent. The ECB wants to keep price growth at just below 2 percent. Eurostat does not provide a monthly figure or a detailed breakdown with its estimate, which will come on January 14.
But economists said the rise in inflation was mainly due to energy and food price rises. BNP Paribas economist Clemente de Lucia, said that between December and November oil prices rose by around 7 euros per barrel, the strongest monthly increase in more than two years. Year-on-year oil prices were up by more than 18 euros, which probably boosted energy prices by around 10 percent year-on-year, de Lucia said. In November it was more expensive energy, especially fuels for transport, heating oil and gas, that was the main driver of inflation.
But economists said that excluding price-driving effects of the tax hikes implemented in many countries, the inflation rate would have been some tenths lower. Further adjusted for volatile energy prices, the underlying inflation would be no more than around 1 percent, they said.
CHRISTMAS CHEER FAILS TO LIFT FRENCH SPIRITS Christmas festivities failed to lift the mood of gloomy French consumers in December as data on Tuesday showed confidence levels slumped to their lowest since August in a bleak signal for the economy in the months ahead.
National statistics office INSEE said its monthly index of consumer confidence in the eurozone's No 2 economy fell to -36 from a downwardly revised -33 in November, well short of a Reuters consensus forecast for -31. November's index had previously been given as -32. Confidence levels for December were only slightly higher than the -37 reached in August last year, reflecting renewed worries among households about the impact on their finances of high unemployment and government deficit-reduction measures. "These figures reflect a real crisis of confidence which will have major economic consequences," said Alexander Law, economist at Paris-based consultancy Xerfi. Consumer confidence in France, where domestic spending is a key engine of growth, has floundered at historic lows since late 2007 as the world became mired in financial crisis.