Euro zone inflation jumps, weighs on rate cut bets

Fri Aug 31, 2012 6:17am EDT
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By Jan Strupczewski

BRUSSELS (Reuters) - Euro zone inflation jumped more than expected in August, data showed on Friday, likely reducing chances that the European Central Bank will cut interest rates next Thursday.

Consumer prices in the 17 countries sharing the euro rose 2.6 percent year-on-year, just above forecasts and accelerating from 2.4 percent in July, the European Union's statistics office estimated.

"This is the first time the euro area inflation rate has accelerated since September last year, and we think that it should rise further in September," Francois Cabau, economist at Barclays Capital, wrote in a research note.

BarCap believed rising energy prices were the main factor, he said.

Inflation has fallen from 3 percent in November 2011 to stabilize at 2.4 percent in May, June and July as the euro zone economy slowed because of the debt crisis.

The ECB, which targets inflation below but close to 2 percent, had expected the rate to fall below 2 percent by the end of the year.

The central bank is also looking for ways to boost economic growth in a stagnating euro zone and may cut its main refinancing rate from 0.75 percent at next week's policy meeting.

Economists in a Reuters poll published on Wednesday were evenly divided on whether there would be a cut, while an October rate cut instead was viewed as equally likely.   Continued...