News: Eurozone breaks another record

Fri, 01 Aug 08

Eurozone inflation has jumped to its highest level since measurements began, new figures confirm.

According to EU statistics office Eurostat, inflation in July in the 15 nation bloc was 4.1%, well above the European Central Bank's 2.0% target.

Meanwhile, unemployment in the euro zone has unexpectedly risen, a sign that economic growth is slowing.

Balancing the risks of rising prices and a downturn pose a challenge for European Central Bank policymakers.

Eurostat revised its May unemployment number up from 7.2% to 7.3% and said it had remained at that level in June.

Spain, hit hard by a housing slowdown, saw unemployment soar to 10.7% - the highest among euro nations and in the 27-nation European Union. In Germany, Europe's largest economy, the rate was 7.3%.

Rate peak?

The ECB acted earlier this month to control inflation by increasing its key interest rate for the first time in a year to counter the effects of rising food and fuel costs.  Rates rose to 4.25% from 4%.

However, analysts say the central bank may have to hold fire on further rate increases as the European economy slows and companies cut jobs.

Soaring fuel and food prices have limited consumer spending and a strong euro has hurt exports.

'The further increase in Eurozone inflation in July will intensify the ECB's already alarming concern about inflation,' said Martin Van Vliet, economist at ING Bank.

'However, with oil prices off their peak and downward momentum in economic activity gathering pace, dampening inflationary pressures in the medium term, the most likely path for interest rates is to be on hold for the rest of the year.'

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