Prices point to record euro inflation

Consumer price inflation in Germany probably accelerated in March, raising the prospect of euro zone price pressures hitting a new record and dampening hopes for any European Central Bank interest rate cuts soon.

Boosted by surging oil costs, prices in the German states of Hesse, Brandenburg and Saxony rose by between 0.4 and 0.6 per cent month-on-month - a bigger increase than had been forecast for Germany this month, official data showed today.

Data from the three German states provided some of the first insights into trends in the 15-nation euro zone, where inflation accelerated to a record 3.3 per cent in February - far above the European Central Bank's target of just below 2 per cent.

Other data today showed consumer price inflation in Belgium, the first euro zone country to report its national figure, hit its highest annual rate since 1985 in March at 4.39 per cent year-on-year.

Karsten Junius, an economist at DekaBank in Frankfurt, said the German state data suggested annual inflation in Germany would be higher this year than last year - despite the fact prices were boosted by a three percentage point rise in sales tax in 2007.

The ECB has kept its main lending rate at 4 per cent even as monetary policymakers in the United States and Britain have cut official borrowing costs to try and restore calm to rattled markets.

Data for the German states showed annual inflation accelerated by between 0.2 and 0.4 percentage points.

A Reuters poll forecast the EU inflation measure for Germany would tick up by a tenth of a point to 3.0 percent in March. Germany, Europe's biggest economy, accounts for nearly a third of the euro zone price index.