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Eurozone inflation spikes to record 4% PDF Print E-mail
Thursday, 03 July 2008

AFP, BRUSSELS - Inflation in the 15 eurozone countries shot up to a record 4.0 percent in June over 12 months amid soaring oil prices, according to a first estimate from the EU's Eurostat data agency on Monday.

The rate, up from 3.7 percent in May, was the highest since the launch of the euro back in 1999 and slightly exceeded analysts' forecasts for 3.9 percent, as polled by Dow Jones Newswires.

Red-hot oil prices, which saw the price of a barrel of crude rise to over 142 dollars last week, have been driving overall inflation to new records, pinching the purchasing power of consumers also struggling with high food prices.

Record inflation, which has triggered protests by fishermen and truckers recently, adds to consumer and businesses' pain just as they are struggling to cope with flagging economic activity.

The surge to 4.0 percent in June 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.

Despite slowing economic growth, the ECB has indicated that it will raise interest rates by a quarter of a percentage point on Thursday in an attempt to cool inflation.

"The further marked rise in eurozone consumer price inflation to a record high of 4.0 percent in June surely rubber stamps an ECB interest rate hike from 4.00 percent to 4.25 percent," said economist Howard Archer at consultants Global Insight.

"Indeed, the extent of the jump to 4.0 percent from 3.7 percent in May is likely to fuel expectations that interest rates will rise higher still, especially as the inflation rate is now more than double the ECB's target of 'close to, but just below 2.0'," he added.

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