Eurozone Inflation Surges to 4.1%

High energy and food costs pushed eurozone inflation to an annual 4.1 per cent in July, a tenth of a point higher than the previous month’s rate and another record for the nine-year-old, 15-member currency region.

The rate of price rises is more than double the level of just under the 2 per cent the European Central Bank deems equivalent to price stability. But economists believe July’s figure does not presage an imminent rate rise.

This is because a slew of economic indicators in the past few days has signalled a marked slowdown in eurozone economic growth over the summer. Oil prices have also peeled off record highs as global demand has shown first signs of falling.

The European Union’s statistical office, Eurostat, said in a first measure of the economy this month that the rate of price rises accelerated even as the eurozone jobless rate, which had been falling until February, stagnated at 7.3 per cent.

This trend seemed consistent with the drop in unemployment in Germany. It is still falling but at a slower rate than 2007 or early 2008 - periods in which the eurozone showed little effect from financial turmoil that started a year ago.

The German statistics office said unemployment adjusted for seasonal factors like plant closures fell 20,000 in July from June to record a rate of 7.8 per cent. From the start of the year and the end of March monthly declines had averaged 67,000.

Alarmed about the prospect of price rises in June, the ECB raised its main lending rate from 4.0 to 4.25 per cent at the start of July and kept silent about whether this was a one-off move to rein in a perceived inflation spike, or the start of a series of moves.

Eurozone Inflation Surges to 4.1%, Bloomberg
7/31/2008 6:16:37 AM