Eurozone inflation hits two-year high

Rising food and fuel prices sent eurozone inflation to a two-year high of 2.2% in December.

The increase takes the cost of living for the 16 countries using the single currency above the European Central Bank's target of just below 2%, but the bank is likely to leave interest rates on hold at 1% to support the recovery.

Economists were expecting a figure of 2%. However, this is still well below the 3.3% rate that is being grappled with by the Bank of England's rate-setters.

Thomas Mayer, Deutsche Bank's chief economist, said: "We are predicting inflation of 2 percent in 2011 and that means that keeping interest rates at historical lows will no longer look appropriate.

"We think that the ECB will have to move interest rates upwards in the second half of the year. It is the beginning of a careful normalisation."

ING eurozone economist Carsten Brzeski added: "It's a bit higher than expected. It should be mainly driven by energy and food prices, and to some extent by administrative prices but that should be a one-off."