EURO-ZONE INFLATION fears were stoked further yesterday when February's rate was revised upwards to a fresh 14-year high of 3.3 per cent, strengthening the case of the European Central Bank (ECB) for keeping its interest rates firmly on hold.
In the US, cheaper fuel, motor vehicles and clothing helped the consumer price index drop to 4 per cent in February from 4.3 per cent in January, adding to expectations of a further rate cut when the Federal Reserve meets on Tuesday.
However, analysts said the reprieve in US inflation could be shortlived as energy prices move sharply higher in March.
The latest euro-zone figure, up from the 3.2 per cent reported initially, provided evidence the surge in price pressures is proving longer-lasting than the ECB envisaged. The rise has been driven by fuel and food increases. In February 2007, the rate stood at 1.8 per cent.
The figure for March could be even higher, analysts said. "Inflation could hit 3.4 per cent this month, which may be the peak, though we think the average for the year will be about 3 per cent - the highest since the launch of the euro," said Nick Matthews at Barclays Capital.
The ECB, which aims to keep annual inflation "below but close" to 2 per cent, has left its main interest rate unchanged at 4 per cent since June last year, in spite of the Fed cutting US borrowing costs.
Jean-Claude Trichet, ECB president, made it clear this month that he saw the anchoring of inflationary expectations as especially important. From the Frankfurt-based institution's point of view, the strong euro has the advantage of curbing inflationary pressures.
As well as food and fuel price rises, the ECB is also wary of inflationary wage deals, especially in Germany, where years of wage moderation might be ending.
Yesterday's figures showed food inflation hit 5.8 per cent in February, while energy inflation remained above 10 per cent. Adding to the ECB's worries, measures of "core" inflation, excluding fuel and food, are creeping higher. Inflation, excluding energy and unprocessed foods, reached an annual rate of 2.4 per cent in February, from 2.3 per cent in January.
Among the 15 euro-zone countries, inflation was lowest last month in The Netherlands, where the annual rate was just 2 per cent.
Among the large countries, Spain's rate remained at 4.4 per cent. On an EU harmonised basis, Irish inflation stood at 3.5 per cent in February. But the fastest rates were in some of the smallest member states - including Slovenia and Cyprus.
© 2008 Financial Times
