The eurozone’s inflation rate unexpectedly rose to a fresh record high in January, an unwelcome surprise for policymakers at the European Central Bank (ECB) who have said they don’t expect to raise their key interest rate this year.

The cost of living in the 19-nation currency bloc rose to 5.1 per cent in January, up from its previous record of five per cent in December, European statistics agency Eurostat said on Wednesday. Expectations were for inflation to dip to 4.4 per cent.

Compared with the previous month, consumer prices rose by 0.3 per cent, indicating that underlying inflationary pressures continue to build. Steep increases in the prices of energy and food were only partly offset by slower growth in prices of manufactured goods.

Meanwhile, in an effort to combat rapid price rises in Britain, the Bank of England (BoE) raised interest rates on Thursday, its first back-to-back increases in more than 17 years, adding that it would start to shrink its enormous holdings of government and corporate bonds. The BoE’s Monetary Policy Committee decided to increase the key interest rate by 0.25 percentage points to 0.50 per cent.

At an annual rate of 5.4 per cent as at December, inflation in Britain is already at its fastest pace in three decades. However, by April, the central bank expects it to climb to about 7.25 per cent, the highest projection the bank has ever made. The BoE raised interest rates in December for the first time in three-and-a-half years.

Finally, in the US, consumer sentiment deteriorated by more than initially estimated in the month of January, according to revised data released by the University of Michigan. Sentiment fell to a downwardly revised 67.2 from a preliminary reading of 68.8. Economists had expected a more modest downward revision to a reading of 68.7.

Survey respondents felt worse about both the current economic conditions, as well as the outlook for the near term. “Although their primary concern is rising inflation and falling real incomes, consumers may misinterpret the Fed’s policy moves to slow the economy as part of the problem rather than part of the solution,” said Surveys of Consumers chief economist Richard Curtin.

 This report was compiled by Bank of Valletta for general information purposes only.