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Europe

Eurozone inflation jumps, raising the prospect of higher interest rates

Eurozone annual inflation jumped to 2.4 percent in January, according to data released Monday, fueled by higher food and energy costs. The increase raises the prospect of an interest rate hike sooner rather than later.

Hand reaching into cash register for bills

The specter of high inflation is returning to Europe

The figures published by the European Union statistics office, Eurostat, for the 17-member eurozone showed that the year-on-year inflation rate climbed from 2.2 percent in December of last year to 2.4 percent in January.

The European Central Bank's (ECB) core inflation target of close to 2 percent has now been breached for the second consecutive month. The news comes after annual inflation in non-euro Britain rose above 3.7 percent in December.

The inflationary pressures come against a backdrop of Europe's ongoing struggle to cope with the region's debt crisis and put the ECB in the difficult position of trying to keep prices down, while not hobbling the financial recovery of the bloc's economies, particularly those of countries like Greece, Ireland and Portugal.

European Central Bank President Jean Claude Trichet

Trichet faces a balancing act

Inflation in Britain rising faster

Bank of England governor Mervyn King warned last week that Britain can expect annual inflation to rise between four and five percent in the coming months due to higher food, fuel and commodity prices.

If prices rise too fast, too soon, the ECB may be forced to lift interest rates to maintain price stability, but some economists say that, at the moment, there is no compelling reason to raise eurozone interest rates.

Author: Gregg Benzow (dpa, AFP)
Editor: Nicole Goebel

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