FRANKFURT (AFX) - Euro zone inflation is expected to rise slightly in January owing to a tax rated leap in Dutch prices, but remains on course to break below the ECB's reference value of 2 pct later in the year, economists said.
However they added that the medium term outlook has nonetheless been clouded by surprisingly high German consumer price inflation (CPI) for February and uncertainty over the effects of the BSE crisis on food prices.
The figures are due to be published tomorrow at 11.00 am London time.
Of 13 economists polled by AFX News, nine said that January HICP will come in higher year on year than December's figure of 2.6 pct. Some five economists forecast a rise to 2.7 pct year on year and three see a rise to 2.8 pct.
One has forecast a year on year rate of 2.9, while four economists forecast an unchanged rate year on year of 2.6 pct.
Economists said that French January inflation, which moderated by some 0.5 pct from December, will act as the major dampening factor on the euro zone HICP.
Germany and Italy both reported sharp January rises in month on month CPI, up 0.5 pct and 0.4 pct respectively.
However economists said that the strong German and Italian price rises will not feed through to the euro zone HICP figure as the harmonized indicator does not include certain components that sparked the jump in these countries' CPI.
"Some factors which caused strong consumer price increase on a national level in January are not captured in the harmonised index", analysts at Bankgesellschaft Berlin said. "Especially in Germany and Italy the picture is better than the figures would suggest."
Economists said that the main factor pushing January euro zone HICP inflation upwards will be a jump in Dutch inflation year on year to 4.2 pct from 2.9 pct in January, due to a rise in VAT.
"The tax related leap in Dutch inflation is likely to offset the moderation in core inflation in the other euro area economies", economists at UBS Warburg said in a note to clients.
Economists said that the trend remains in place for inflation to dip below the 2 pct reference level later in the year, even though risks to core inflation remain on the upside due to second round effects from high energy prices.
"On balance we expect developments in inflation remain relatively benign... HICP should move towards the ceiling of 2.0 pct in the coming months", UBS Warburg said.
ECB chief economist Otmar Issing also expressed his confidence that inflation will decline this year, saying last week the ECB has "good reason to expect" the 2 pct threshold will be broken this year. Economists added however that the moderate outlook has been clouded somewhat by very high preliminary German CPI data for February, which rose 0.6 pct from January.
They said that the rise could have been engendered partly by higher resteraunt prices, stemming from consumer worries about the safety of meat consumption.
Denis Errica at Banca Internazionale di Gestione said that the effects of BSE on food prices as well as continued doubts about the euro's expected recovery against the dollar mean that the outlook for inflation remains far from clear.
"It is really very hard to evaluate", he said.