Prices fear in France and Germany

Filling the trolley is costing more

The annual rate of inflation in France has hit a 12-year high while rising prices have dented consumer confidence in Germany, figures have shown.

French consumer prices rose 0.8% in March on a monthly basis, and are now running 3.5% higher than a year ago.

The above-forecast rise was driven by the escalating cost of food and fuel.

Economists said various factors, such as record oil prices and the strong euro, meant consumers in both countries were in for a tough time in 2008.

'Bad news'

French economists said inflation was likely to remain above 3% for most of 2008 and that this was likely to force up inflation across the eurozone as a whole.

"We thought that the figures wouldn't be good but this clearly is not good news," said Olivier Gasnier, an economist with Societe Generale.

"It is especially bad news for consumer spending."

Mathieu Kaiser, from BNP Paribas, said rising living costs were squeezing private consumption levels and that households faced a "tough test" in 2008.

A recession is definitely not around the corner Andreas Rees, Unicredit

German consumer confidence data published by Zew research was the weakest so far this year, reflecting widespread nervousness about food and fuel costs and the continuing rise of the euro against the dollar.

But analysts said the figures painted an overly gloomy picture of the economy since the export sector was still healthy.

"We think the renewed decline is puzzling as German companies showed an outstanding resilience over the last few weeks," said Andreas Rees, from Unicredit.

"A recession is definitely not around the corner. However, starting from the autumn or so, signs of a slowdown will be mounting."

Inflationary concerns have stopped the European Central Bank from cutting interest rates, despite calls for action to trim borrowing costs in the face of faltering economic growth.