Surging energy costs drove euro zone producer price inflation to its highest level in 2.5 years in March, strengthening the case for more interest rate rises.

The European Union's statistics office Eurostat said prices at factory gates in the 17 countries using the euro rose 0.7 per cent month-on-month in March for a 6.7 per cent year-on-year increase, the highest since September 2008, when it reached 7.7 per cent.

Rises in prices charged by producers, unless absorbed by intermediaries or retailers, mean higher prices for consumers and therefore signal inflationary pressures.

The main driver of higher producer prices in March was energy, the price of which rose 1.9 percent against February, to be 13 per cent higher than a year earlier.

Without the volatile energy and construction figures, producer prices rose 0.2 per cent month-on-month and 4.5 per cent year-on-year.

Reuters