European Inflation Highest In 16 Years

Bloomberg News reports that European inflation accelerated to the highest in 16 years last month, as food and energy costs greatly increased. The inflation rate in the euro area rose to 3.7%, the highest since June 1992, from 3.3% in April, the European Union’s statistics office in Luxembourg said. (The rate for May is higher than the 3.6% estimate published on May 30.)

Soaring commodity prices have pushed up costs for companies and consumers and at the same time, are posing a “serious challenge” to economic growth, officials said. European Central Bank (ECB) President Jean-Claude Trichet said the ECB may raise its benchmark interest rate a quarter point in July, signaling he is setting aside concerns about the economy’s expansion to combat inflation.

With inflation accelerating “it becomes increasingly difficult to argue against an ECB hike in July,” said Carsten Brzeski, an economist at ING Group in Brussels. “However, we still believe that a July rate hike would be a one-off, mainly to flaunt the ECB’s willingness to fight any second-round effects.”