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Eurozone inflation hits new record

Latest update : 2008-06-16

Inflation in the Eurozone has risen 3.7% over the past year, due to oil and food prices. It is a record since the creation of the Eurozone in 1999.

Inflation in the 15 euro countries hit a new record in May of 3.7 percent amid soaring oil and food prices, according to the European Union's Eurostat data agency on Monday.

The rate, revised up from a first estimate of 3.6 percent, was the strongest since the launch of the euro in 1999 and brought more bad news for European consumers seeing their purchasing power dwindle in the face of record prices.

It also marked a sharp pick-up in 12-month inflation from April, when consumer prices in the eurozone grew 3.3 percent.

"It's going up. It's not a good figure. Inflation is our main concern for what regards the economy at the moment," said Amelia Torres, the European Commission's spokeswoman on economic and monetary affairs.

However, annual inflation in the full 27-nation European Union rose even higher, hitting 3.9 percent in May after 3.6 percent the previous month.

"Inflation was primarily pushed up by a sharp jump in energy costs and higher food prices," said economist Howard Archer at consultancy Global Insight.

Recent record oil and food prices have pushed inflation higher, putting additional strain on consumers and businesses already struggling with slowing economic growth.

Fishermen and truckers have been venting their anger at the high cost of living for about a month with blockades and strikes, and even inflicted minor damage on the very walls of the EU's institutions in Brussels.

Torres said the figures show "that we have to remain extremely careful in order to avoid a wage and inflation spiral, which once again would not be in the interests of anybody, starting with the workers."

While headline inflation hits record highs, underlying growth in consumer prices remains relatively subdued.

Excluding the impact of volatile prices such as energy, food, alcohol and tobacco, underlying inflation nudged up to 1.7 percent in May from 1.6 percent in April.

The headline 3.7 percent in May brought eurozone inflation even further away from the European Central Bank's comfort zone, which it defines as annual consumer price growth of close to but less than 2.0 percent.

The figures also complicate the ECB's task of keeping inflation under control in the face of an increasingly downbeat outlook for the eurozone economy.

Ever vigilant against inflation, the Frankfurt-based central bank said earlier this month that a interest rate hike was in the works for July although it would not mark the start of a series of increases.

"A rate increase next month looks like a done deal, but the fact that core inflation remains subdued supports the view that the move will be a one-off," said Jennifer McKeown at consultancy Capital Economics.

Date created : 2008-06-16

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