Euro zone inflation rebounded as expected in November and inflation expectations rose among more upbeat households, whose increasing consumption bodes well for growth and spells more ECB rate rises, economists said.
Consumer prices in the 12 countries using the euro rose 1.8 per cent year-on-year in November, a flash estimate from the European Union's statistics office showed, in line with market expectations and accelerating from 1.6 per cent in October.
Separately, a monthly European Commission survey showed consumer sentiment improving in November to -7 from -8 in October and consumer inflation expectations rising to 28 from 26, in a steady upward trend since the start of 2006.
Producer price inflation expectations, however, eased to 12 from 13. The European Central Bank, which aims to keep price gains just below 2 per cent, has sought to curb rising inflation expectations with interest rate rises since December 2005.
The bank has signalled it will raise rates by 25 basis points to 3.5 per cent next week. But it has left its options open for 2007, when it expects euro zone economic growth to slow to around 2.1 per cent from about 2.5 per cent seen this year.
The Commission forecast fourth-quarter growth in a range of 0.3 to 0.7 per cent quarter-on-quarter. For the first three months of 2007, the EU executive boosted its forecast to a range of 0.3 to 0.8 per cent from the prior projection of 0.0 to 0.5. In the second quarter of 2007, quarterly growth would be in the range of 0.3 to 0.9 per cent, the Commission projected.
Economists said that faced with relatively strong growth and a rise in inflation, which is expected to move above the ECB's target in December, the bank was likely to raise rates at least once more next year - to 3.75 per cent in the first quarter and possibly even twice to 4.0 per cent.