MercoPress. South Atlantic News Agency

September Euro-zone inflation above target: ECB move now

Euro zone annual inflation was 2.1% last September, (up from August 1.7%) and above the European Central Bank's target for the first time in twelve months according to the latest release from Eurostat.

Driven by high fuel and food prices (2.4%), consumer prices rose 0.4% in September. Oil traded at up to 80 US dollars a barrel in September and food prices have been pushed up by recent weather forecasts and strong international demand. This means the inflation rate rose above the ECB's target of "below, but close to, 2%," for the first time since August 2006. The surge was expected by economists, who had forecast that energy-related base effects and rising food prices would push the rate of inflation higher. However the figures make uncomfortable reading for the ECB, and suggest it may yet raise interest rates for a ninth time since December 2005. While the recent tightening of global credit conditions should slow growth next year, the ECB's more hawkish members have taken pains to remind market participants that inflation risks remain high. The ECB has increased its key interest rate eight times since December 2005, to 4% from 2%, in a bid to contain inflationary pressures in the economy. Most economists had expected the ECB to raise the rate 25 basis points to 4.25% in September, but many now believe that a rise is heavily dependent on whether or not the recent market turbulence persists. "With the Euro very strong and the liquidity problem still far from being resolved, any additional tightening of monetary policy by the ECB would exacerbate already growing risks to the Euro-zone growth outlook" said Audrey Childe-Freeman an economist with CIBC World Markets. The rate of core inflation, which excludes energy, food, alcohol and tobacco, rose 0.3% on the month in September and rose 2.0% on the year. Excluding only tobacco prices, the inflation rate rose 0.4% on the month and rose 2.1% on the year. In the 27 countries that make up the European Union, annual inflation was 2.2% in September, up from 1.9% in August. On the month, inflation in the E.U. rose 0.4%. In related news inflation in the United Kingdom remained unchanged at 1.8% in September. Rising food prices were offset by falling energy bills. The single biggest factor increasing prices was food, even when vegetables prices fell. But dairy products experienced sharp increases in September increasing 6.3%. Economists believe the latest figures are unlikely to have an impact on the Bank of England interest rate outlook.