Euro area inflation breaks new record

LUCIA KUBOSOVA

01.08.2008 @ 09:07 CET

EUOBSERVER / BRUSSELS - Inflation in the 15-strong euro area has reached a new record of 4.1 percent, twice as much as the monetary goal of the European Central Bank (ECB), leaving its Frankfurt-based decision-makers in a dilemma over the next interest rates move.

According to a flash estimate issued on Thursday (31 July) by Eurostat, the EU's statistical office, euro area annual inflation is expected to rise by 0.1 percent in July 2008, compared to June's rate of 4.0 percent.

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Prices have not climbed as fast since inflation records started in 1997 for countries which now form part of the single currency club, with the key factor behind such trends being soaring fuel and food prices.

The ECB last month reacted to the inflationary pressure by raising the bloc's interest rates by a quarter percentage point to 4.25 percent, a seven-year maximum, with some analysts predicting the same move once again by the end of this year.

However, Frankfurt also has to take into account the worsening state of the eurozone economy, with a separate survey showing that a business and consumer confidence in it slumped in July at the fastest pace since just after terrorist attack in the US in 2001.

Meanwhile, Eurostat statistics on unemployment - also released on Thursday - showed that unemployment rates kept steady in June at 7.3 percent in the eurozone and 6.8 percent in the whole 27-strong European Union.

Spain has been particularly affected by a housing slowdown due to the last year's US mortgage crisis, with its jobless rate in June rising sharply to 10.7 percent, the highest level in the EU. Almost a quarter of Spanish young people are unemployed.

Ireland has also seen a sudden end to its economic boom with an increase in unemployment to 5.7 percent in June, while the biggest eurozone countries Germany recording a jobless rate of 7.3 percent and France 7.5 percent.