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Euro Zone Inflation Surges 3.1% on Food, Oil Prices

Euro zone inflation surged to 3.1 percent in November, the highest level since May 2001 according to Global Insight, and above an earlier estimate of 3 percent, data from the EU statistics agency Eurostat showed on Friday.

Higher costs for basic foods such as milk, cheese and eggs now join the usual suspects -- transport fuel and heating oil -- as factors pushing up prices from a year ago, it said.

eggs

"I think there will be one story that which dominate the headlines next year and that is inflation," Royce Tostrams, technical analyst at Tostrams Groep told CNBC Europe.

"The conclusion is that the basket of commodities, which is the CRB index, remains very bullish. And I think rising commodities will signal inflation and this will be the story."

Year-on-year inflation in the currency area was 2.6 percent in October and 2.1 percent in September.

It is now well over a guideline of just under 2 percent that the European Central Bank looks to when it decides whether to raise interest rates to boost borrowing costs.

ECB's Hands Tied

But the ECB is now under pressure to keep rates on hold to encourage reluctant banks to keep lending out money to each other in the wake of a credit crisis where they are worried about taking on extra debt.

The 27-nation European Union also reported inflation of 3.1 percent. The European Commission voiced concern on inflation, calling for measures to curb it.

"This calls for renewed attention and moderation from governments, social partners and companies to avoid second-round effects," Commission spokeswoman Amelia Torres said, referring to a phenomenon when the cost of oil triggers price rises in other sectors and in wages.

Price changes vary widely across the region with the largest economy, Germany, reporting inflation just above the average at 3.3 percent.

Within the euro zone, its newest member Slovenia has the highest rate at 5.7 percent, and the Netherlands has the lowest in the euro area, as well as the wider EU, with 1.8 percent.

Latvia topped the EU list with rocketing inflation of 13.7 percent as the small Baltic nation grows rapidly. Bulgaria -- which joined the EU this year -- follows behind with 11.4 percent with another Baltic country, Estonia, coming in at 9.3 percent.

November Inflation in Germany Rises

Inflation in Germany last month reached its highest point since January 1994, with rising costs for food and energy driving the figures up, the government said Friday.

Consumer prices were up 0.5 percent in November, compared with a rise of 0.2 percent in October, according to the federal statistics office, Destatis. For the year, inflation rose 3.1 percent, compared with November 2006.

The figures were revised upward from the agency's initial report that prices had risen 0.4 percent on the month and 3 percent on the year.

The EU-harmonized measure -- calculated on items in a standardized basket of goods -- remained unchanged 0.5 percent from October to November, and rose to 3.3 percent from a year ago.

The increases in Germany were led by heating oil prices and the cost of diesel, used to power trucks and cars. Destatis said heating oil prices were up 23.7 percent from last year, while the cost of diesel rose 21.6 percent on the year.

Costs for food products also rose, led by higher prices for milk, butter and bread.

- AP and Reuters contributed to this report

Contact Europe: Economy

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