Europe October Inflation Accelerates to Two-Year High


European inflation accelerated more than economists forecast in October, while confidence in the economy declined, underlining the European Central Bank's quandary over whether to raise interest rates.

The inflation rate in the 13-nation euro area rose to 2.6 percent from 2.1 percent in September, the European Union's statistics office in Luxembourg said today. That is the highest in two years and above the 2.3 percent median forecast of 38 economists in a Bloomberg News survey. An index of executive and consumer sentiment fell to a 19-month low of 105.9 in October from a revised 106.9 last month, according to a separate report.

ECB policy makers are divided on whether to focus on inflation or economic growth when deciding on interest rates. An 80 percent jump in the price of oil since mid-January is stoking inflation, while the collapse in U.S. subprime mortgages that pushed up credit costs globally and the euro's increase to a record threaten to curb the pace of expansion.

Crude-oil prices reached a record $93.80 a barrel on Oct. 29. That increase, coupled with soaring food prices, exacerbated inflation at the same time as declining unemployment threatened to fuel wage growth. The October inflation rate is the highest since September 2005, when it was also 2.6 percent. The rate was last higher in June 2001, at 2.8 percent.


Bloomberg
10/31/2007 6:31:42 AM