Euro zone prices see first rise in 7 months

Consumer prices across the euro zone rose for the first time for seven months in November, as the bloc pulls out of recession and as energy costs increase, official figures showed today.

Prices were up 0.6% during the month, according to the initial estimate from the EU's Eurostat data agency, a turnaround from a 0.1% drop in October and the first time that euro zone prices have risen since April.

However analysts pointed out that core inflation - which excludes food and fuel - was historically very low. Inflation rose among the biggest economies of the area, returning to positive territory in Germany and Spain and continuing to increase in Italy.

Analysts said that the November increase was due essentially to energy related base effects, which after pushing down inflation throughout the summer, are now having an opposite effect.

Even though the rise of the euro helps Europeans buy goods from overseas, domestic factors such as wages are the main drivers of core inflation. Euro zone unemployment rate rose to 9.7% in September, with over 22 million people out of work, meaning wages are likely to ease further.

The return to inflation in November had been expected, after the very shallow price drops in October, but the 0.6% rise surprised analysts.

However the higher than expected euro zone inflation is unlikely to alarm the European Central Bank (ECB) into changing its key interest rate, which currently stands at 1%, analysts agreed.

The European Commission this month revised its economic forecasts, forecasting that the euro zone economy will expand rather than contract in 2010 while warning that rising unemployment and public deficits will remain problems for several years.

In a sign that the worst of the deepest and longest recession in European Union history may be over, the commission revised its euro zone growth estimate up to 0.7% for 2010 and 1.5% in 2011. Previously the commission had expected a 0.1% drop next year.