March 14, 2012 / 10:03 AM / in 6 years

Inflation weighs on euro zone as factories recover

* Euro zone inflation at 2.7 pct in February

* Industrial production up by 0.2 pct in January

BRUSSELS, March 14 (Reuters) - Energy prices drove up the cost of living in the euro zone in February just as factories showed signs of a recovery, likely dragging on the stagnant economy and dampening any sense of relief that Europe’s debt crisis is easing.

Energy costs were 9.5 percent higher in February than the same month a year ago, breaking a fall in euro zone inflation and pushing consumer prices up to 2.7 percent in the month, the European Union’s statistics office Eurostat said on Wednesday.

While inflation is below last year’s peak of 3 percent, economists and the European Central Bank had expected prices to fall steadily in 2012 as the euro zone slips into recession. Lower prices could have given some relief to households at a time of rising unemployment.

“Inflation is proving stickier than previously expected, predominantly driven by oil prices,” said Marco Valli, chief euro zone economist at UniCredit, in a note to clients before the data was released.

Prices rose for all goods and services except for communications and education in February, compared to January.

Tensions between the West and Iran over its nuclear programme have driven up world oil prices, even as economic growth in the global economy - notably China - cools.

Saudi Arabia and other Gulf producers have said oil prices could spike if tensions over Iran do not subside soon.

The ECB kept interest rates at 1 percent this month, judging that low rates are crucial to stimulating growth and that inflation seems limited for the time being.

A slight rise in industrial production in the euro zone in January - ending two consecutive monthly falls - pointed towards the bloc’s eventual recovery from recession later this year.

The devastating impact of the euro zone’s debt crisis appears to be lessening after the ECB made 1 trillion euros available to banks and EU leaders signed a pact committing governments to budget austerity, reassuring investors.

Seasonally-adjusted industrial production grew by 0.2 percent from December. Factories in Germany performed better, with output climbing 1.5 percent in the euro zone’s top economy.

But the euro zone’s growing divide between the prosperous north and the depressed south was clear. Production fell by 2.5 percent in Italy and by 0.2 percent in Spain, the euro zone’s third and fourth largest economies, respectively.

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