Mideast turmoil increases EU inflation risks

European inflation risks have mounted as a result of turmoil in the Middle East, the European Commission has warned as a fall in eurozone unemployment highlighted the robust pace of economic growth across the continent at the start of the year.

Surging energy and commodity prices mean inflation this year will be "markedly" stronger than thought with risks to forecasts "somewhat tilted to the upside" because of recent geo-political tensions, the European Union's executive arm warned in its latest update on the region's economy.

Tuesday's comments came as Eurostat, the EU's statistical office, reported the eurozone annual inflation rate hit 2.4 percent in February, up from 2.3 percent in January and the highest since October 2008.

The Commission's forecasts and latest economic data strengthen the case for the European Central Bank taking a harder line on inflation threats at its council meeting on Thursday.

It is widely expected to signal that an interest rate rise in coming months has become more likely. The ECB has held its main interest rate at the record low of 1 percent since May 2009.

Led by Germany, the eurozone saw economic growth rebounding at the start of the year. The Commission said it expected the 17-country bloc's economy to expand by 1.6 percent in 2011, compared with the 1.5 percent it had forecast in November.

That would mean that growth had lost little momentum after the 1.7 percent pace of expansion seen in 2010. But the pattern of growth remains uneven.

The commission said: "Germany continues to benefit from the robust external environment and strong domestic demand dynamics, whereas significant adjustment challenges still weigh on activity in several other countries."

Bucking the European trend, forecasts for growth in the UK -- not part of the eurozone -- were revised down, reflecting the contraction in the British economy at the end of 2010. But the UK was still expected to expand more quickly than the eurozone, with gross domestic product rising by 2 percent, compared with the 2.2 percent forecast in November.

The Commission's inflation forecasts saw much larger revisions. The eurozone rate would average 2.2 percent this year -- compared with the 1.8 percent it had expected in November. The Commission's forecasts are closely watched because the ECB, which will publish revisions to its projections on Thursday, uses a similar methodology.

Falling unemployment would further support the eurozone recovery. In January, the eurozone unemployment rate dipped to 9.9 percent, down from 10 percent in December. Although the fall was small, it was the first drop since early 2008 and indicated that eurozone joblessness had peaked and may have started a downward trend.

Germany continues to enjoy strong falls in unemployment. National figures for February showed a larger than expected 52,000 fall in the seasonally-adjusted total to 3.1m. The German unemployment rate dropped to 7.3 percent in February, from 7.4 percent in January, and the lowest since 1991.