Energy, Food Prices Drive Euro-Zone Inflation

Forex News: The annual rate of inflation in the 15 countries that use the euro rose further above the European Central Bank's comfort zone in June, as energy and food prices continued to rise.

Figures published by the European Union statistics agency Eurostat Wednesday showed consumer prices increased 0.4% in June from May, and were up 4.0% from June 2007. In the 12 months to May, consumer prices rose 3.7%.

The calculation of the annual rate of inflation wasn't revised from the preliminary estimate published June 30, and was in line with expectations.

The inflation rate's latest surge marks a new record high for the measure, which is at its highest level since Eurostat began collecting data in 1997.

It's now twice as high as the ECB's target of "below, but close to" 2%. It has been above 2% for ten months in a row, prompting the central bank's rate setters to strike a hawkish tone.

Earlier this month the ECB raised its key interest rate to 4.25% from 4.0% in a bid to tame inflationary pressures in the currency area. The ECB fears that persistently high rates of inflation will lead workers to demand pay rises to match, which if granted by employers, would lead to a second round of price rises.

The rise in prices was broad based, but led by a 2.5% increase in energy prices from May. Over the year, energy prices were up 16%, a significant pick up from the 13.7% rise in the 12 months to May.

Food prices also rose again, although by a relatively modest 0.2% on the month. Over the year, however, they were up 6.4%, a year-on-year rise that was unchanged from May.

But, prices of other goods and services are also on the increase, with the annual measure of core inflation - which excludes food, energy, alcohol and tobacco - rising to 1.8% from 1.7% in May and 1.6% in April.

Excluding tobacco prices, the consumer price index rose 0.4% on the month and 4.0% on the year.

Prices rose most rapidly in Slovenia, where they were up 6.8% on the year. They rose most slowly in the Netherlands, where they were up 2.3% from June 2007.