FRANKFURT, Germany – Inflation in the 17 countries that use the euro crept up to an unexpectedly high 2.8 percent in April, official data showed Friday, keeping pressure on the European Central Bank to raise interest rates again later this year.
At the same time, measures of business and consumer optimism declined and unemployment stayed high — presenting a mingled picture of the economy's future that could complicate the bank's work as President Jean-Claude Trichet, whose term ends Oct. 31, prepares to hand off to a successor.
Speculation about who will inherit the job has focussed on Bank of Italy head Mario Draghi, who has been publicly backed by France and Italy; EU leaders say a decision will be made in coming weeks.
The inflation figure published by Eurostat, the EU statistics agency, was up from 2.7 percent in March. Many analysts had expected the figure to remain the same this month.
Inflation has remained above the ECB's goal of just under 2 percent, largely due to higher oil and food prices. Although the bank expects the price bump to ease next year, it was concerned enough to start raising rates from record lows, with a quarter point increase to 1.25 percent on April 7.
Economists predict several more such increases by year's end.
While oil prices are the main culprit, "the underlying price trend also seems to have become somewhat stronger recently," said economist Ralph Solveen at Commerzbank. "Today's numbers will support those on the ECB council who are pushing for a quicker normalization of monetary policy."
Although the key interest rate is not far from its record low, the bank's move has aroused concern that higher borrowing costs may make it harder for financially troubled countries such as Greece and Ireland, which have received bailout loans to avoid default on their debts, and Portugal, which has asked for a bailout.
Those three countries are only a small fraction of the eurozone economy, however, and the bank is looking at strong growth and rising prices in Germany, which makes up 27 percent of eurozone economic output and has a powerful export economy led by autos and industrial machinery.
Higher rates are the central bank's chief tool in fighting inflation, but they can hurt growth if done at the wrong time. The bank must find one rate that works for all the countries of the eurozone, which gave up their independent interest rate policies when they joined the euro.
Other signs for the eurozone remained mixed Friday. Unemployment was steady at 9.9 percent in March. The rate was boosted by underperforming economies in several countries, particularly Spain, the fourth largest euro economy. It suffers from a record 21.3 percent joblessness rate in the wake of a collapsed real estate bubble, and 44.6 percent unemployment for people under 25.
Meanwhile, the EU's broad economic sentiment indicator fell significantly, by 2.3 points to 105.1, for the 27-member European union, weighed down by a sharp drop in Britain's services and retail sectors.
The index fell more moderately by 1.1 points to 106.2 for the eurozone, the second decline in a row. Most EU members recorded a dip, and the index remains firmly above its long term averages only in Germany, France and the Netherlands.
NEW YORK (Reuters) – Merck & Co (MRK.N) reported higher-than-expected first-quarter earnings, fueled by cost cutting and strong sales of its drugs for diabetes, asthma and rheumatoid arthritis.
The second-largest U.S. drugmaker said on Friday it earned $1.04 billion, or 34 cents per share. That compared with $299 million, or 9 cents per share, a year earlier, when it took a number of big charges and a tax expense related to U.S. healthcare reform.
Excluding special items, Merck earned 92 cents per share. Analysts on average expected 84 cents, according to Thomson Reuters I/B/E/S.
Merck said operating expenses were $350 million lower in the quarter, bolstering results, including $200 million less spending for research and development.
"Overall, we are pleased with today's results, particularly coming off a difficult fourth quarter when the company withdrew its long-term guidance," JP Morgan analyst Chris Schott said.
Merck in February yanked its 2009 to 2013 profit forecast, rather than chop research and development spending to meet its longtime goal of high-single-digit annual growth over the period.
But on Friday, Merck slightly trimmed its full-year R&D forecast to between $8 billion and $8.4 billion, from its earlier view of $8.1 billion to $8.5 billion.
Even so, Merck is taking only a fingernail clipper to its research budget compared with the ax being wielded by rival U.S. drugmaker Pfizer, which is slashing its R&D budget by up to $2 billion to meet its 2012 profit forecast.
Merck's quarterly global sales of $11.58 billion topped the analysts' average forecast of $11.37 billion.
Its shares were up 0.8 percent at $36.05 in trading before the market opened.
The company expects earnings this year of $3.66 to $3.76 per share, excluding special items -- nudging up by 2 cents the lower end of its earlier estimate. That would reflect profit growth of 7 percent to 10 percent from 2010.
(Reporting by Ransdell Pierson; Editing by Lisa Von Ahn and Derek Caney)
LONDON (Reuters) – Oil prices hovered near 31-month highs as a weak dollar and violence in North Africa and the Middle East outweighed concerns about slowing growth in top consumer the United States.
On its last trading day of April, U.S. crude was heading for an eighth consecutive month of gains, the longest run of monthly increases since 1983, Reuters data showed.
U.S. crude was up 41 cents at 1217 GMT at $113.27 a barrel, the highest since the close on September 22, 2008. Brent futures were also rose 44 cents to $125.46, less than $2 short of its 2011 high of $127.02, reached on April 11.
Both U.S. and Brent crude recouped losses posted earlier on Friday after euro zone data showed the inflation rate rose further above the European Central Bank's target in April.
The data increased the chances of another interest rate rise in the euro zone in June and helped push the dollar index against a basket of major currencies (.DXY) to a fresh three-year low.
"European markets are becalmed by three consecutive short trading weeks, and market activity has been fairly limited during this time. Geopolitical concerns in North Africa and the Middle East remain, with the conflict in Libya at an impasse and Syrian unrest increasing," said Lawrence Eagles from JP Morgan.
Libya's conflict spilled beyond its borders on Friday as forces loyal to leader Muammar Gaddafi attacked the Tunisian town of Dehiba, near the Libyan border.
Morocco, which borders major oil and gas producer Algeria, said a bomb that killed at least 14 people on Thursday in its busiest tourist destination was a terrorist act.
And in Syria, tensions escalated with security forces firing tear gas to disperse protesters in Damascus while tens of thousands of Syrians rallied across the country demanding political freedoms.
The weak dollar also helped push gold to a new record as investors sought alternative assets.
Oil hovered near multi-month peaks despite weak U.S. data, which showed on Thursday that economic growth had braked sharply in the first quarter as higher food and gasoline prices dampened consumer spending and sent inflation rising at its fastest pace in 2-1/2 years.
"At current price levels the main downside risk comes from demand destruction," said Olivier Jakob from Petromatrix consultancy.
Growth in the U.S. gross domestic product slowed to an annual rate of 1.8 percent from a fourth-quarter pace of 3.1 percent, the Commerce Department said. Economists had expected a 2 percent pace.
Victor Shum, an analyst at Purvin & Gertz, said oil prices would continue to trade sideways in the next few days.
"Any aggressive exit by is unlikely, because what are the alternatives for investors?" Shum said. "If the global economy tanks, stocks will go down. Oil will stay supported because of geopolitical risks."
"With renewed buying being seen from Asian customers, we continue to see upside price risks in the environment, unless more concrete action from OPEC members is forthcoming," said JP Morgan's Eagles.
(Writing by Dmitry Zhdannikov, editing by William Hardy)