European Inflation Comes At 29 Month High Of 2.6%, Well Above Expectations, Sends EURUSD Above 1.42

Earlier Eurostat released its February European CPI number which was higher than January (2.4%) and consensus (2.4%), coming at 2.6%. That is the fastest inflation growth in more than two years in March as European Central Bank policy makers prepared to raise interest rates to fight increasing price pressures.Per Bloomberg: "Inflation in the 17-nation euro region quickened to 2.6 percent from 2.4 percent in February, the European Union’s statistics office in Luxembourg said today in an initial estimate. That’s the fastest since October 2008 and exceeds the ECB’s 2 percent limit for a fourth month. Economists forecast inflation to hold at 2.4 percent, the median of 32 estimates in a Bloomberg News survey showed." The primary reason for the jump in inflation are energy costs, leading to such paradoxes as $9/gallon gasoline, as Europe is far more expose to Brent prices than the US which has spiked this year: "Crude oil prices have surged 15 percent this year as output from Libya slumped. An armed conflict between Libyan leader Muammar Qaddafi’s troops and rebel forces has forced companies including Total SA and ConocoPhillips to suspend operations and evacuate staff. Crude was trading at $105.30 a barrel today." The result of the release was a kneejerk jump in the EURUSD to 1.423 as a modest hike by the ECB seems now virtually assured. Of course, a hike in rates means that the already cooling Economy will deteriorate even more. What that means for a continent that is now harboring increasingly more insolvent nations only Trichet (and Bernanke) knows.

More from Market News:

Consumer price inflation in the Eurozone surpassed expectations in March, hitting a 29-month high annual rate of 2.6%, preliminary estimates from Eurostat showed on Thursday.

More detailed data, including the monthly HICP change and sector breakdown, are to be published April 15. The flash estimate points to a monthly rise of slightly more than 1.1%. National CPI reports from Germany and Spain highlighted price pressures from costlier energy and food.

Noting higher food, energy and metals prices, companies polled for the March purchasing managers index (PMI) reported the strongest jump in input costs since July 2008.

Output prices also saw strong upward movement this month, reflecting firms' "increased success" in passing on their rising costs to clients, the PMI report added.

Selling price expectations were revised up across all major sectors of the Eurozone in March, the European Commission survey showed. Expectations in industry hit their highest point since early 1995, while expectations in services, retail and construction reached levels unseen since the onset of the financial crisis.

Consumers also anticipate rising prices in the coming year, as evidenced by the Commission's sub-index hitting a near three-year high.

Recent developments in oil markets, due in large part to ongoing tensions in the Middle East and North Africa as well as the catastrophes in Japan, point to further upward price pressures stemming from energy.

And some more from Bloomberg:

The euro-region economy is already showing some signs of cooling. European economic confidence worsened in March, with both manufacturers and consumers forecasting rising prices over the coming 12 months. Services and manufacturing growth weakened this month and German investor confidence dropped.

At their April 7 meeting, ECB council members will have to weigh threats to economic growth with the risks of surging costs leading to more entrenched inflation. The Frankfurt-based central bank earlier this month forecast euro-region inflation to average about 2.3 percent this year and 1.7 percent in 2012.

“There’s a considerable risk that inflation expectations will get out of control,” Andrew Bosomworth, a money manager at Pacific Investment Management Co., said in an interview with Francine Lacqua on Bloomberg Television’s “On The Move” on March 29. “When you look at the strength of the core countries in the euro area, a 1 percent repo rate is way too low.”

The statistics office will release a breakdown of March consumer prices including core rates excluding volatile costs next month. Euro-region core inflation slowed to 1 percent in February from 1.1 percent in the previous month.