Inflation in the euro zone has increased to 2.3 per cent in December, with price hikes during the Christmas shopping season along with higher tobacco costs likely to have outweighed easier energy prices.
Today's estimate from the European Union statistics agency Eurostat was in line with expectations of economists, who had anticipated a small inflation spike in the 12 nation single currency area after initial data from Germany and Italy.
Higher taxes on tobacco boosted inflation in Germany and Italy, which account for nearly half of the euro zone economy.
"If we look at what we know about the national data so far, one of the main contributions came from Italy and Germany, where there was a tobacco tax hike," said Luigi Speranza, economist at BNP Paribas in London.
Year-on-year inflation rate eased to 2.2 per cent in November from October's 2.4 per cent .
Although inflation moved further away from the European Central Bank's aim of keeping it close to but below 2 per cent, the ECB is expected to keep interest rates unchanged at its next meeting on January 13th.
"What we are seeing is really that we are going sideways at the end of the year and in the beginning of 2005 inflation is likely to go down as we get more favourable base effects," said Juergen Michels, analyst at Citigroup. The strength of the euro and falling oil prices is expected to contribute to the benign inflationary outlook.