European inflation increases

As the current economic downturn has affected consumer confidence and halted consumer spending, European inflation has remained close to its lowest rate since 1999, although there has been a sharp increase in February.

Euro-zone inflation across the 16 countries experienced a 1.1 percent rise in January and this in turn has heightened the case for the European Central Bank (ECB) to cut interest rates tomorrow.

Within the period, consumer prices increased by 1.2 percent, compared with a 1.1 percent increase in January, as an inflation rate of 1 percent was expected in February.

Analysts have indicated that the increase above estimates in the rate of inflation is an anomaly and not a trend and things will rebound shortly.

The overriding expectation is that the ECB will still cut interest rates from between 0.5 and 1.5 percent tomorrow.

Currently inflation still remains on target and the fact that most economists are predicting that the rate will remain below 2 percent until 2010 means that there is a chance that the ECB will cut rates to zero next year.

Meanwhile the ECB has announced that, although the focus is on keeping inflation to close, or under 2 percent, this will not be done to the detriment of growth as inflation is no longer the key issue in the current economic climate.

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