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Last Updated: Thursday, 21 February 2008, 11:34 GMT
French inflation up on food costs
French Finance Minister Christine Lagarde talks to ECB head Jean-Claude Trichet
Politicians and central bankers are watching economic developments
Rising food and fuel costs pushed up French inflation to 3.2% in January, its highest level in more than a decade, official figures have shown.

The rate was up from December's figure of 2.8%, and was the highest level the EU harmonised inflation measure has hit since it was introduced.

The inflation figure could be awkward for the European Central Bank (ECB).

The ECB is expected to cut interest rates this year to encourage growth, but rising inflation could stop this.

The French inflation figures showed food prices rose 1.4% in January from December, and were up 4.2% compared with a year before. Energy prices were up 12.3% in January from the year before.

Fragile balance

At its last meeting, the ECB kept its key interest rate unchanged at 4% for the eighth month in a row.

The expectation has been that eurozone rates will be cut this year to shore up confidence in the region's fragile economic recovery, but with inflation stubbornly high in the biggest economies, some analysts believe that a downward move will be delayed.

"(For the ECB) inflation concerns are still right at the forefront," said Dominic White, economist at ABN Amro.

He noted that concerns about growth have become more pronounced over the past few months.

"Given where inflation is right now and the prospect that it can remain fairly animated throughout much of 2008, it's far too soon to be talking about the ECB leaning towards a bias for cutting rates," he said.

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