Eurozone Inflation Jumps to 4%

Prices in the eurozone are rising at 4 per cent a year, the highest inflation rate the 15-nation bloc has seen since statistics began in 1997 and a further sign the European Central Bank will raise its main rate from 4 to 4.25 per cent on Thursday.

Eurostat, the European Union’s statistics office, said on Monday in its initial flash” estimate the annual rate of price rises jumped from 3.7 per cent in May to 4.0 per cent in June, twice as high as the ECB’s target of below but close to” 2 per cent.

Record-high energy prices were the main reason for the increase. The June rate is higher than the 3.9 per cent level predicted by economists and further grist to the mill of the inflation-hawks on the policy board of the Frankfurt-based institution.

ECB president Jean-Claude Trichet warned last month that inflation meant a rate-rise was possible, even though eurozone growth is beginning to feel the impact of economic woes of member-states like Spain and trading partners like the US.

Since warning of a possible interest-rate increase, Mr Trichet has been at pains to stress that a move at the start of July need not herald a series of similar steps – a statement money-market investors have received sceptically given high oil prices.

Over the weekend, a chorus of eurozone politicians – including Spanish prime minister José Luis Rodriguez Zapatero and German finance minister Peer Steinbruck – warned the ECB to keep an eye on growth rates as well as prices.

Although money-market rates last week showed investors were betting on further rate rises, many economists believe energy prices will come down from their record highs and that eurozone slowing growth will further reduce upward price pressure.

Eurozone Inflation Jumps to 4%, Financial Times
6/30/2008 7:29:56 AM