Eurozone inflation hits 16-year high

Eurozone inflation has been revised up to the highest level for 16 years and a European Central Bank official has warned that rising wage costs could add increasingly to the pressures created by soaring oil prices.

Annual inflation in the 15-country region last month was 3.7 per cent, according to Eurostat, the European Union’s statistical office. That was up from 3.3 per cent in April.

G8 sees rising inflation threat - Jun-15Eurozone inflation fears mount - Jun-14Bundesbank raises inflation forecast sharply - Jun-07Lex: ECB rate decision - Jun-05Eurozone inflation rebounds to record levels - May-28Comment: A happy 10th anniversary, Emu - May-25Higher inflation rates have not been recorded since the eurozone was created in January 1999 and not since June 1992 on a comparable basis. Eurostat had originally reported a 3.6 per cent inflation rate for May.

Inflation has been driven higher by sharp rises in oil and food prices – and is expected to move closer to 4 per cent in coming months. But the ECB has shown signs of becoming more worried about more general price pressures, which helps explain why it has announced that it is likely to raise its main interest rate by a quarter percentage point to 4.25 per cent in July.

The ECB’s fear is that high inflation rates caused by high oil price will become entrenched by feeding through into wage settlements. Data on Friday showed hourly eurozone labour costs rose by 3.3 per cent in the year to the first quarter – the fastest since early 2003.

The central bank hopes its planned increase in interest rates next month will send a strong signal about its determination to keep expectations about medium and longer term inflation rates firmly under control. The ECB aims to keep annual inflation “below but close” to 2 per cent.

Within the eurozone, inflation rates continue to vary considerably. Slovenia reported an annual rate of 6.2 per cent in May and Belgium, Greece, Spain, Cyprus, Luxembourg, Malta and Finland all reported rates in excess of 4 per cent. At the other extreme, inflation was just 2.1 per cent in the Netherlands.

Source:
Financial Times, Eurozone inflation hits 16-year high,
16.06.2008