Eurozone inflation spikes to record 4% in June
BRUSSELS (AFP) — Inflation in the 15 countries sharing the euro hit a record 4.0 percent in June on the back of soaring oil prices, according to official EU data on Wednesday, confirming a first estimate.
Driven by record oil prices, eurozone inflation spiked in June to the highest rate since the launch of the euro in 1999 after the European Union's Eurostat data agency registered a rate of 3.7 percent in May.
Oil prices hit records over 140 dollars a barrel in June, pinching the purchasing power of consumers already struggling to cope with soaring food prices.
Eurostat's data showed that transport fuel prices surged 18.5 percent in June over one year while the cost of air transport spiked 11.5 percent and heating oil jumped a whopping 53.1 percent.
Soaring oil prices lifted overall inflation in European economic heavyweight Germany to a near 15-year high while consumer prices grew at the fastest rate in nearly 17 years in France, the two countries' statistics offices said Wednesday.
Meanwhile, inflation in the 27-nation European Union rose even faster than in the eurozone, hitting 4.3 percent in June after 4.0 percent in May, according to Eurostat.
Record inflation, which triggered protests by fishermen and truckers in June, adds to consumer and businesses' pain just as they are struggling to cope with flagging economic activity.
Despite the surge in consumer prices in June, Eurostat said that underlying inflation grew much less quickly.
Excluding volatile items like energy, food, alcohol and tobacco prices, inflation rose to 1.8 percent in June from 1.7 percent.
Although underlying inflation remained relatively tame, the jump in the headline figure to 4.0 percent brought consumer prices to nearly double the European Central Bank's comfort zone, which it defines as close to but less than 2.0 percent.
Despite slowing economic growth in Europe, the ECB raised its main lending rate earlier this month by a quarter percentage point to 4.25 percent in an attempt to keep a lid on inflation.
Even though inflation looks likely to remain high, economist Jonathan Loynes at consultants Capital Economics said the ECB was unlikely to raise interest rates higher in the coming months.
"We still think that this month's rate hike will prove to be a one-off rather than the start of a new phase of monetary tightening," Loynes said.
"But even with the economy clearly slowing, it will be some time yet before the ECB is prepared to think about cutting rates," he added.
With crude oil prices holding at around 140 dollars a barrel, many economists expect inflation to remain high, with new records likely in the coming months.
"We suspect that moderating food inflation together with resilient energy inflation will remain the reference picture for a while. We see headline inflation accelerating further during the summer," said economist Marco Valli at Italian bank Unicredit.
However, Bank of America economist Holger Schmieding predicted that inflation relief would be on its way after the summer.
"From September onwards, inflation should decelerate gradually as the sharp increases in oil and food prices that started in late 2007 drop out of the year-on-year comparison," he said
"Short of any new spike in import prices, headline inflation could then fall back below 2.0 percent again in the summer of 2009."
