Euro zone inflation rose to 0.7 per cent in April

BRUSSELS (AFP) - Euro zone inflation rose to 0.7 per cent in April, slightly below analyst forecasts but up from the 0.5 per cent reported in March which was the lowest rate since October 2009, official data showed on Wednesday.

Analysts had expected April inflation at around 0.8 per cent, against a background of concern that the euro zone was unduly close to deflation. The Eurostat data agency said service sector prices rose 1.6 per cent in April, up from a rate of 1.1 per cent in March.

However, the rate of increase in food and alcohol prices fell to 0.7 per cent, down from 1.0 per cent, while energy fell 1.2 per cent after a drop of 2.1 per cent in March.

Inflation in the 18-nation euro zone has fallen steadily in the past year, reflecting weak demand as the economy recovers slowly from a record recession. The March figures in particular added to concerns over deflation - falling prices which can undercut growth.

The European Central Bank (ECB) has an inflation target rate of just under 2.0 per cent and while playing down deflation concerns, has said it is ready to take further action on top of record-low interest rates to boost demand if needed.

Earlier this month, International Monetary Fund chief Christine Lagarde said it was just "a question of timing" when the ECB would have to take additional measures to tackle the problem. The ECB holds its regular monthly meeting neet week after holding policy steady in recent months.

Economists worry that ultra-low inflation could stall a still-modest economic recovery while outright deflation could even put it into reverse since lower prices mean companies halt investment, hitting jobs and wages, which in turn puts fresh pressure on the economy.