Eurozone inflation up to 10-month high in Dec.

AP News
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Posted: Jan 05, 2010 6:29 AM

The annual inflation rate in the 16 countries that use the euro rose to a ten-month high in December but still remains way below the European Central Bank's ceiling, official figures showed Tuesday.

In its flash estimate for the month, Eurostat, the EU's statistics office, said consumer prices increased 0.9 percent in the year to December, up from November's 0.5 percent.

Eurostat did not provide an immediate reason for the increase, which was towards the top end of market expectations. However, analysts were expecting a rise given the recent spike up in oil prices, in particular _ a year ago a barrel of benchmark crude on the New York Mercantile Exchange was exchanging hands at around $40, half the current price.

December's rate was the highest since February's 1.2 percent.

From June to October 2009, prices had fallen as the previous year's sharp increase in energy prices dropped out of the annual comparison and the severity of the economic recession dampened inflationary pressures throughout the eurozone.

Analysts doubt that runaway inflation will become a major headache for the European Central Bank _ it is tasked to set interest rates to aim for annual price increases of just below 2 percent _ given high unemployment levels and relatively subdued consumer demand.

Frederik Ducrozet, eurozone economist at Calyon Credit Agricole, said base effects, particularly related to global energy prices, are likely to be less relevant in the coming months, while inflationary pressures in Greece, Spain and Ireland continue to ease amid mounting economic problems.

"We are only looking for a modest rise in eurozone inflation to around 1.5 percent by mid-year," said Ducrozet.

Against this subdued inflationary background, analysts expect the European Central Bank to keep its benchmark interest rate unchanged at the historic low of 1 percent when it meets next week.

A more complete breakdown of the December figures will be published on Jan. 15.