Eurozone inflation at 2.7% in February

Energy prices drove up the cost of living in the eurozone in February, likely to drag on a still-stagnant economy and dampening any sense of relief that Europe’s debt crisis is easing. Energy costs were 9.5 per cent higher in February than the same month a year ago, breaking a fall in euro zone inflation and pushing consumer prices up to 2.7 per cent in the month, the European Union’s statistics office Eurostat said on Wednesday. While inflation is below last year’s peak of 3 per cent, economists and the European Central Bank had expected prices to fall steadily in 2012 as the euro zone slips into recession. Lower prices could have given some relief to households at a time of rising unemployment and sharp spending cuts. Industrial output data, also published on Wednesday, offered some hope the economy was beginning to restart, showing factories expanding by 0.2 per cent across the bloc as a whole. “Inflation biting into the economy is quite damaging ,” said Marco Valli, chief euro zone economist at Unicredit. “Any further rises in prices would be a risk to growth,” he said. Eurozone prices rose for all goods and services except for communications and education in February, compared to January. Energy prices jumped 1.1 per cent on the month. Tensions between the West and Iran over its nuclear programme have driven up world oil prices, even as economic growth in the global economy -notably China -cools. Saudi Arabia and other Gulf producers have said oil prices could spike if tensions over Iran do not subside soon although the Saudis have promised to fill any gap in supplies. The ECB kept interest rates at 1 per cent this month, judging that low rates were crucial to stimulating growth and that underlying pressures on prices seem limited for the time being. Still, ECB President Mario Draghi said last week that rising energy prices would likely push inflation above 2 per cent in 2012 “with upside risks prevailing.” That is above the ECB’s target of below, but close to 2 per cent, which the Frankfurt-based bank judges to be right for price stability and a healthy economy.