Eurozone inflation rises faster than expected

Eurozone inflation increased faster than expected in February as rising energy costs spurred higher prices across the currency zone.

The first estimate for inflation from Eurostat came in at 5.8%, well ahead of the 5.3% average analysts' forecast and up from 5.1% in January. All the biggest economies in the eurozone posted readings ahead of expectations.

The main reason for the surprise reading was a 3 percentage point rise in the rate of energy inflation to 31.7%. Food price inflation picked up 0.6 percentage point to 4.1% and core inflation, excluding energy, food and other volatile items, increased to 2.7% from 2.3% as price rises accelerated for services and non-industrial goods.

The war in Ukraine is expected to put further upward pressure on prices for energy and food, making the European Central Bank's job harder as it tries to balance rising prices and economic uncertainty.

"Given the higher expected oil and gas prices and likely disruptions in supply, we expect energy prices to keep headline inflation well above target at least during the rest of this year," Mateusz Urban at Oxford Economics said. The ECB is likely to take a "wait and see" approach and delay its first rate rise until early 2021, Urban said.

Separately Eurostat said the unemployment rate in the eurozone fell to 6.8% in January from 7% a month earlier. The jobless reading has fallen from 8.3% in January 2021 as the worst effects of the pandemic have eased.