European inflation slows less than forecast over rising energy costs

PanARMENIAN.Net - European inflation slowed less than economists forecast in March as rising energy costs countered the effects of a cooling economy, Bloomberg reported.

The inflation rate in the 17-nation euro region fell to 2.6 percent from 2.7 percent in February, the European Union’s statistics office in Luxembourg said in an initial estimate. While that is the lowest rate since August, it was above the 2.5 percent pace forecast by economists, according to the median of 39 estimates in a Bloomberg News survey.

The economy may struggle to gather strength as budget cuts and rising oil prices erode consumer spending and company investment. Retail sales in Germany, Europe’s largest economy, unexpectedly declined for a second month in February. While the European Central Bank cut its key interest rate twice to a record low in the fourth quarter, the bank said on March 8 that short-term risks to price stability have moved to the upside.

Euro-region inflation may average about 2.4 percent this year and 1.6 percent in 2013, the ECB said on March 8. The Frankfurt-based central bank, which earlier this month left its benchmark rate at 1 percent, aims to keep annual gains in consumer prices just below 2 percent.

European stocks extended the biggest first-quarter advance since 2006 and the euro gained while default risk fell as euro- area finance ministers met to increase the region’s rescue-fund firewall. The Stoxx Europe 600 Index (SXXP) added 0.7 percent as of 10:30 a.m. in London. The euro rose 0.3 percent to $1.3337 against the dollar.

Tensions in the Middle East are driving up energy costs, draining the purchasing power of companies and consumers. Oil prices are up 6 percent over the past two months, bringing annual gains to 1.8 percent.