- China Overcapacity Worsening, EU Chamber Warns
- Investing in Good Karma – and Making a Profit
- Black Friday to Avoid Red Ink; Greenback Gets the Blues
- Bankruptcies Jump, Hitting Highest Level in Four Years
- Steepest Black Friday Discounts, Revealed
- Fed to Counsel Moviegoers on How to Use Credit Cards
- Where Do Pardoned Turkeys Go?
- US Mint to Suspend American Eagle Gold 1-Ounce Coins
- Judge Erases Couple's $525,000 Mortgage Payment
- 4 Thanksgiving Week Buys For Your Portfolio: Market Pros
- There's a 'Great Chance' For a Double-Dip Recession: Strategist
- Revenge of the Gangsta Nerds
- Will TCU See The "Flutie Effect?"
- Retail Earnings and Sales to Improve in Q4: Analyst
- Consumers Catching the Holiday Spirit
- It's Beginning To Look A Lot More Riskless
- Crescenzi: Claims Level Suggests End to Job Losses
- Hedge Funds Take Early Lead in Warren Buffett's 'Big Bet'
MOST SHARED
- The Executive Job Search
- Chinese Overcapacity is Worsening, EU Chamber Warns
- Where Do Pardoned Turkeys Go?
- Salvation Army's Kettles Now Credit Card-Ready
- US Mint to Suspend American Eagle Gold 1-Ounce Coins
- Activision Prepares to Double Dip on ‘Modern Warfare 2’
- Black Friday: Bargain or Bust?
- Wal-Mart Price Pressure Hurts China Workers: Report
- Topless Business Is Taking Off
Text Size 
Surging food and fuel prices drove euro zone inflation to a new record high of 3.7 percent year-on-year in May, data showed, cementing expectations that the European Central Bank will raise interest rates on July 3.
 |
AP |
The European Union's statistics office revised upwards its previous May inflation estimate of 3.6 percent following higher-than-expected price rises in several of the 15 euro zone countries, including the two biggest -- Germany and France.
Prices rose 0.6 percent month-on-month in May, Eurostat said, and 3.7 percent annually -- the highest annual increase since measurements for the zone started in 1997.
This compares with 3.3 percent annual inflation in April and 3.6 in March.
"The May euro zone consumer price data are likely to seal an interest rate hike from 4.00 percent to 4.25 percent at the ECB's 3 July meeting," said Howard Archer, economist at Global Insight.
Economists had expected May consumer price growth at the level of the initial Eurostat estimate, although several had forecast an upward revision after the national inflation numbers came out last week.
Economists expect euro zone inflation to edge up towards 4 percent over the coming months and some forecast the ECB therefore to raise rates more than once.
The euro jumped against the dollar from $1.5429 to $1.5470 after the European Commission, commenting on the data, said inflation was its main economic concern.
The remarks reinforced expectations of more ECB rate rises, traders said.
"The inflation outlook is still worrying. That leaves us on track for more than one rate hike after the widely expected July one," said Nick Kounis, economist at Fortis.
Last week, several of the central bank's Governing Council members had sought to make clear that the possible July rate rise was not likely to be the beginning of a tightening cycle.
Wage Fears
Data on accelerating euro zone wage growth in the first quarter, released last Friday, added to the ECB's concerns because it raised the specter of a wage-price spiral, ECB Executive Board member Gertrude Tumpel-Gugerell said.
But some economists noted that inflation excluding volatile food, alcohol, tobacco and energy prices rose only to 1.7 percent year-on-year from 1.6 percent in April.
Many economists call this measure core inflation.
"A rate increase next month looks like a done deal, but the fact that core inflation remains subdued supports the view that the move will be a one-off," said Jennifer McKeown, European economist at Capital Economics.
Food, alcohol and tobacco prices rose 5.7 percent annually while energy costs jumped 13.7 percent, mainly driven by oil, which jumped from around $110 a barrel at the start of the month to $135 towards the end of May -- twice the year-earlier price.
What the ECB calls core inflation, i.e. stripping out energy and unprocessed food costs, grew to 0.2 percent on the month in May and 2.5 percent year-on-year, up from 2.4 percent in April.
The ECB wants inflation to be just below 2 percent.
It said earlier this month it may raise interest rates "by a small amount" on July 3 to anchor inflation expectations because price growth would be higher and last longer than previously expected.
Print
Email
- For nearly three decades, these on-call experts have been dishing advice on how to – and not to – cook turkey.
- Eric Schmidt pledges to create a virtual copy of the Iraq National Museum at Google’s expense.
- Bill Griffeth is taking a leave of absence from CNBC and Power Lunch for a year. Here's a message from Bill.
- More shoppers than ever plan to comparison-shop this season. Who will benefit?
- It may be the most unusual guide to business you'll read.
- How can you get out of debt and back on the road to recovery? Follow these ten steps.
Data is a real-time snapshot *Data is delayed at least 15 minutes