Forex: Higher inflation in the EU as Preliminary CPI rises to 2.6%


The European Union Preliminary Consumer Price Index rose to 2.6% in March, higher than previous month’s increase of 2.4%. This is the fastest increase in more than two years. It was much higher than the expected 2.3% rise.

Eurostat releases preliminary CPI data on a monthly basis and is a good indicator of inflation as it measures the change in the prices of goods and services. Inflation an impact on the value of a currency because as prices rise, so does inflation. This leads to the central bank raising interest rates, hence appreciating the currency.

The Eurostat data does not provide a breakdown for Preliminary CPI but ECB President Trichet mentioned that the rise in inflation is mainly due to the rise in oil prices. In March the European Central Bank left interest rates unchanged at historically low levels of 1%. However, the new data may prompt the ECB to raise interest rates in April in order to keep inflation in check and slow the acceleration of prices in the 17 countries using the Euro.

The CPI data, coupled with improving unemployment figures from Germany earlier this morning, resulted in the Euro to surge past the 1.4200 level to peak as high as 1.4232, gaining over 80 pips against the US Dollar since opening the European session at 1.4150, making a new week high, not far from the 2011 high of 1.4247.