Eurozone inflation raises prospect of hike in rates

Julian Harris
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THE euro ticked up against the dollar yesterday morning, after rising inflation in the single currency area was seen to further increase the chances of a hike in interest rates next week.

The euro climbed above $1.42 (88p) in morning trading.

Meanwhile, June Bund futures hit a session low and two-year yields rose, after the Eurostat office revealed that inflation in March was likely to have hit 2.6 per cent – up from 2.4 per cent in February.

The European Central Bank (ECB) is widely expected to raise interest rates next week.

An index of leading indicators for the Eurozone, also released yesterday, remained at 0.57, holding steady at its highest level since April 2010.

“Strong industrial production and trade data offset the decline in equity markets over the month,” noted Michal Dybula of BNP Paribas.

In Germany -- the Eurozone’s largest economy – unemployment dropped to its lowest level since figures for a unified Germany were first published two decades ago.

The jobless rate fell by 55,000 in March after a drop of 54,000 in February, bringing the unemployment rate down to 7.1 per cent.

However, there was worse news on the German high street, as retail sales fell unexpectedly in February, by 0.3 per cent.

Retail sales had been strong in recent months, rising 0.4 per cent in January, and by a whole percentage point in December.

“Higher inflation is obviously damaging household real income growth at present,” Dybula commented.