European inflation accelerated more than economists estimated in December to the fastest rate in more than two years, led by surging energy prices.
Euro area consumer prices rose 2.2 per cent in December from a year earlier after increasing 1.9 per cent in November, the European Union statistics office in Luxembourg said today. That's the highest inflation rate since October 2008 and above the 2 per cent forecast by a Bloomberg-survey of economists.
The price of crude oil jumped 8.6 per cent in the last month of 2010, bringing the annual rise to more than 15 per cent.
The European Central Bank, which aims to keep annual consumer price gains just below 2 per cent, forecast last month that euro zone inflation will average about 1.8 per cent this year and 1.5 per cent in 2012.
"Energy and food prices are of course the big factors to watch," said Nick Kounis, head of macro-economic research at ABN Amro Bank NV in Amsterdam. "If we did see further surges in food and energy, which would put inflation above 2 per cent for a sustainable period, then the ECB could start to be concerned about inflation expectations."
The euro extended its gains against the dollar after the report, trading at $1.3405 as of 11:02 a.m. in Brussels, up 0.3 per cent on the day. Oil traded at $91.56 a barrel, near a 27- month high in electronic trading on the New York Mercantile Exchange.
Increased energy prices leave households and companies with less money to spend or invest, while a stronger euro threatens to hurt exports. The Frankfurt-based ECB, which has kept its key interest rate at a record low of 1 per cent since May 2009, forecast on December 2nd that economic growth in the 17 countries using the euro may weaken to 1.4 per cent this year.
Today's inflation report is an initial estimate and the statistics office will release a breakdown of December consumer prices on January 14th. In November, core inflation, which excludes volatile costs such as energy prices, held at 1.1 per cent.
Europe's recovery is slowing as the euro's appreciation against the dollar makes the region's goods less competitive abroad. European consumer confidence fell more than economists forecast in December after authorities had to step up austerity measures to tackle the debt crisis.
Rising prices may prompt unions to demand higher wage increases. Tata Steel Ltd. last month said it will raise prices for plate and wire rod in Europe, citing higher raw-material costs and rising orders.
Bloomberg