European CPI rises at 3.3% annual rate in February - may prevent ECB rate cut

Euro-zone inflation hit a new record annualized rate of 3.3% in February 2008, the the E.U.'s Eurostat office announced Friday, as surging oil prices began to feed through the price system. (pdf)

The 3.3% annualized rate represent 0.1% increase from the previous estimate of 3.2%, which was also a record. The euro-zone is a 15-nation region that uses the euro currency.

The core rate, which excludes the often-volatile food and energy costs, increased at a 2.4% annualized rate.

In February 2008 energy prices increased an alarming 10.4% on a year-over-year basis, Eurostat said, while food and transportation costs rose 5.8% and 5.4%, respectively, on a year-over-year basis.

Economic Analysis: The February 2008 statistics indicate that euro-zone inflation is beginning to show the effects of surging oil prices. Increased energy efficiency, a lower per capita energy use rate, and a rising euro had heretofore been able to diffuse the rise in energy costs, particularly oil, but oil's relentless march higher finally enabled energy costs to filter through to the economy.

Further, retail inflation is above the European Central Banks target of just below 2%. If the core rate continues to rise, that will make it harder for the ECB to cut benchmark, short-term interest rates to stimulate Europe's economy, which is likely to slow this year, due to the U.S. economic slowdown.