A record monthly increase in euro-zone inflation unexpectedly pushed up the annual rate to a 29-month high in March, a move that is likely to strengthen expectations that the European Central Bank will further tighten monetary policy further this year, official data showed Friday.

The euro zone’s inflation rate rose to 2.7% from 2.4% in February, the highest level since October 2008 when the rate was 3.2%, the European Union’s Eurostat agency said. Economists were expecting no change from the preliminary March estimate of 2.6%.
On a monthly basis, a seasonal increase in prices for clothing and footwear, and higher costs for transport fuel and heating oil, led to a 1.4% jump in the consumer-price index after a 0.4% rise in February. It was the sharpest monthly increase since records began in 1996, Eurostat said, and also topped economists’ predictions of a 1.3% rise from a month earlier.
In a sign that underlying price pressures are building, Eurostat said core inflation—which excludes volatile items like energy, food, alcohol and tobacco—accelerated to 1.3% from a year earlier in March from 1.0% in February, the highest level since August 2009. Core inflation also rose by a record 1.4% on a monthly basis, Eurostat said.
Separately, Eurostat said the euro zone posted a smaller-than-expected trade deficit in February as exports rose while imports fell. The 17 countries that then used the euro had a combined deficit in their trade in goods with the rest of the word of €1.5 billion ($2.17 billion), having had a deficit of €15.6 billion in January, a figure that was revised from the previous estimate of €14.8 billion.
Economists surveyed last week estimated that the value of imports exceeded the value of exports by €6.0 billion.
The euro zone had a trade surplus of €1.4 billion in February 2010.
Exports in February rose to €135.7 billion from €124.6 billion in January, while imports fell to €137.1 billion from €140.3 billion.
On a seasonally adjusted basis, exports rose by 1.6% from January, while imports rose by 1.0%.
The pickup in exports is good news for the currency area’s fragile economic recovery, but may not survive the euro’s recent appreciation against other major currencies in anticipation of and in response to the European Central Bank’s decision to raise its key interest rate this month.
(Source: WSJ)