Inflation soars to 16-year record in EU
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Tuesday June 17 2008
INFLATION soared to its highest level in 16 years across the EU during May, driven by runaway oil and food prices.
Price rises in the euro area rose to 3.7pc, the highest recorded since June 1992, from 3.3pc in April, the European Union's statistics office in Luxembourg said, sparking fears that interest rates would rise by more than a quarter per cent next month.
European Central Bank President Jean-Claude Trichet said this month the ECB may raise its benchmark interest rate by at least a quarter point in July, signalling he was setting aside concerns about the economy's expansion to combat inflation.
Goodbody Stockbrokers economist Deirdre Ryan said inflation now languished well above the ECB's stated target of close to 2pc, while in the US inflation resided at 4.2pc.
Challenge
These significant underlying price pressures were highlighted in the latest G8 meeting with the communiqué stating that elevated commodity prices, especially of oil and food, posed a serious challenge to stable growth worldwide, she said.
"Economic growth will face significant headwinds in the short term and will struggle to make any meaningful gains without the aid of an easing monetary policy," Ms Ryan said.
Food-price inflation accelerated to 6.4pc in May from 6pc in April, while energy prices rose 13.7pc from a year earlier, up from a 10.8pc hike the previous month, the statistics office said.
High food prices "are here to stay" as governments divert resources to make biofuels, amass stockpiles and limit exports", Peter Brabeck-Letmathe, chairman of Nestle SA, the world's largest food company, said yesterday.
Food prices "will establish themselves on a higher level, but not at the peaks we have seen in some weeks", he said.
The core rate of inflation, which excludes food and energy costs, rose to 1.7pc in May from 1.6pc in April, according to Eurostat.
The ECB, which signalled the possible interest-rate increase on June 5, is concerned about the emergence of second-round effects, when consumers and companies seek compensation for higher costs by pushing up salaries and their own prices, fanning inflation.
European labour costs rose 3.3pc in the first quarter, more than economists forecast and higher than the 2.9pc rate in the previous three-month period.
- Pat Boyle
