Eurozone inflation soars to new high






Eurozone prices were 4% higher in June than a year earlier, twice as high as the ECB's inflation target.

STORY HIGHLIGHTS

• Prices were 4% higher in June than a year earlier, twice as high as the ECB's target
• French president Nicolas Sarkozy calls on ECB to focus on growth, not just inflation

  Eurozone inflation rose in June to its highest since the bloc's 1999 formation, data showed on Monday as political opposition mounted to an expected European Central Bank move to raise its main interest rate this week. Prices were 4 per cent higher in June than a year earlier, twice as high as the ECB's inflation target, according to preliminary estimates by Eurostat, the European Union's statistical office
Howard Archer at Global Insight in London said this "surely rubber-stamps" the ECB's expected move to raise the interest rate by 25 basis points to 4.25 per cent on Thursday.
But, given the possibility of stagflation - low growth paired with high inflation - European politicians have begun to warn the ECB not to ignore growth as it strives for price stability.
Nicolas Sarkozy, France's president, on Monday called on the bank to focus on economic growth, not just inflation. He argued today's rate was not a structural problem, as 30 years ago, but caused by surging commodity prices. Raising interest rates would only kill off economic activity in Europe without combating the root cause of inflation.
"Inflation today is due to the explosion in commodity prices. You cannot tell me that in order to fight against inflation you must raise interest rates," he said. "You can double, triple interest rates and that will not decrease the price of a barrel of Brent," Mr Sarkozy said.
His comments came as oil prices hit a fresh record of $143.67 a barrel and commodities recorded their largest first-half-of-the-year price jump for at least half a century.


José Luis Rodriguez Zapatero, Spain's prime minister, has urged the ECB to show "flexibility" to price rises driven by oil rather than consumer demand.

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