High world oil prices offered no respite for the euro zone’s stubborn inflation in March as the EU’s statistics agency revised upwards an initial reading for the month even at a time when the currency area’s economy likely tipped into recession.
Consumer prices in the 17 nations sharing the euro were up 2.7 percent in March from a year ago, the EU’s statistics office Eurostat said on Tuesday, the same level as in February but up from a first estimate for March of 2.6 percent.
Most economists believe the euro zone’s economy has slipped into recession after a contraction in the last quarter of 2011 and with a subsequent probable shrinkage in the first three months of this year.
Were it not for Brent crude prices near $120 a barrel, inflation would likely reflect the depressed economy where rising unemployment, government cuts and weak business confidence have eaten into consumers’ willingness to spend.
Concerns about supply disruptions from U.S. and European sanctions on OPEC’s second-largest producer Iran have driven Brent crude up by about 13 per cent this year.
That is a threat to the euro zone’s expected economic recovery later this year, economists say.
Energy accounted for about 0.6 percentage points of the euro zone’s inflation level in March, meaning that without the high cost of fuel, gas and heating oil, consumer prices would be around the European Central Bank’s target of below, but close to 2 per cent.
The ECB left interest rates on hold at 1.0 per cent for the fourth month running in early April, resisting calls from European politicians and leading international economists to cut rates further, and let inflation rise, to promote growth.
After calming the euro zone debt crisis with unprecedented three-year loans to commercial banks, the Frankfurt-based bank appears to be back in inflation-fighting mode, warning in its latest monthly bulletin that risks of rising prices were high.
“Inflation is likely to stay above 2 percent in 2012, mainly owing to recent increases in energy prices,” the editorial in the ECB’s April monthly bulletin said.
Annual inflation in March was as high as 3.8 percent in Italy and 3.1 percent in Belgium, while only 2.3 percent in Germany and 1.8 percent in Spain.
French President Nicolas Sarkozy, who is seeking re-election in Sunday’s first-round vote, said on Tuesday it was “not possible that the ECB does not participate in supporting growth.”
The conservative French leader has upset Berlin by declaring at a campaign rally that he wanted a debate on the ECB’s role in helping economic growth, breaching a November agreement not to publicly discuss the bank’s independence.