Wednesday, March 14, 2007

Inflation in Europe raises fears


“Fears over rising eurozone inflation” -

“Euro inflation brushes off VAT effect”

The European Central Bank (ECB) is worried as Eurozone “core” inflation continues on an upward path, according to official figures; inflation in the 13-country Eurozone region has increased to an annual rate of 1.9 percent (the highest since 2004), up from the 1.8 percent the previous month.

The inflation rate, despite being in line with the ECB’s objective of keeping the annual rate below 2 percent, has had an adverse effect on interest rates, pushing them higher. Further, borrowing costs are expected to increase in reaction to the inflation rates upward trend.

The rise to 1.9 percent comes after experts believed the rate would continue to hold stead at 1.8 percent, as it had throughout the month of February. However, some economists were expecting such a rise to accompany an increase in German VAT (Value Added Tax—tax on exchanges) that occurred throughout January.

Nevertheless, the ECB forecasts that the rate will lower during the spring and summer before rising once more around year’s end.


- Is it possible for inflation to surpass the ECB’s target rate of 2% during the rest of 2007?

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