European inflation accelerated faster than economists forecast this month as oil prices jumped to a record, adding to what European Central Bank President Jean-Claude Trichet has called policy makers' biggest challenge.
The inflation rate in the euro area rose to 3.6 percent, matching a 16-year high, from 3.3 percent in April, the European Union statistics office in Luxembourg said in a statement today. Economists had forecast a 3.5 percent rate, according to the median of 36 estimates in a Bloomberg survey.
The ECB, which aims to keep consumer-price growth below 2 percent, said yesterday there are signs inflation expectations have been trending up recently and it's imperative that they remain contained. The Frankfurt-based bank celebrates its 10th anniversary this weekend, having failed to meet its target for the last eight years, and holds its next policy meeting June 5.
"This will probably encourage speculation that the ECB may pull the rate trigger later this year, the growth slowdown notwithstanding,'' said Martin van Vliet, an economist at ING Group in Amsterdam. "Investors better brace themselves for an ultra-hawkish statement from the ECB president at next week's press conference.''
Separate figures published by the statistics office today show that unemployment in the euro area remained at a record low of 7.1 percent in April.
The euro pared declines after the inflation report. It was down 0.2 percent to $1.5496 as of 11:17 a.m. in Brussels, after earlier dropping to as low as $1.5461.
Crude Oil
Crude oil prices have doubled in the last 12 months and reached a record $135.09 May 22. Food commodities have also surged in the last year, boosting how much consumers are paying for staples such as bread and milk. Wheat has gained 45 percent in the past year and corn has surged 51 percent.
Retail sales in Germany, Europe's largest economy, unexpectedly dropped for a second consecutive month in April, according to figures published today, as faster inflation left consumers with less money.
Companies and households expect prices to continue to rise. A European Commission index of manufacturers' selling price expectations increased this month, while consumers' outlook for their personal finances deteriorated. Greencore Group Plc, the world's biggest maker of prepared sandwiches, this week said it's been passing on cost increases to customers.
Fed Concerns
In the U.S., Federal Reserve bank presidents also have expressed growing concern about rising prices.
"If inflationary developments and, more important, inflation expectations continue to worsen, I would expect a change of course in monetary policy to occur sooner rather than later, even in the face of an anemic'' economy, Bank of Dallas President Richard Fisher said on May 28.
The ECB has kept its key rate at a six-year high of 4 percent to counter inflation even as the economy of the 15 euro nations cools. The central bank is concerned that wages will increase to compensate for the higher cost of living, threatening a wage-price spiral.
"There has been a sharp deterioration in the inflation picture,'' said Simon Barry, an economist at Ulster Bank in Dublin. "Our base case is the ECB is on hold for now, but the inflation risk has increased and there's no room for complacency.''
The inflation figures published today are an estimate. The statistics office will publish a detailed breakdown of the data and the core rate on June 16.
The inflation rate in the euro area rose to 3.6 percent, matching a 16-year high, from 3.3 percent in April, the European Union statistics office in Luxembourg said in a statement today. Economists had forecast a 3.5 percent rate, according to the median of 36 estimates in a Bloomberg survey.
The ECB, which aims to keep consumer-price growth below 2 percent, said yesterday there are signs inflation expectations have been trending up recently and it's imperative that they remain contained. The Frankfurt-based bank celebrates its 10th anniversary this weekend, having failed to meet its target for the last eight years, and holds its next policy meeting June 5.
"This will probably encourage speculation that the ECB may pull the rate trigger later this year, the growth slowdown notwithstanding,'' said Martin van Vliet, an economist at ING Group in Amsterdam. "Investors better brace themselves for an ultra-hawkish statement from the ECB president at next week's press conference.''
Separate figures published by the statistics office today show that unemployment in the euro area remained at a record low of 7.1 percent in April.
The euro pared declines after the inflation report. It was down 0.2 percent to $1.5496 as of 11:17 a.m. in Brussels, after earlier dropping to as low as $1.5461.
Crude Oil
Crude oil prices have doubled in the last 12 months and reached a record $135.09 May 22. Food commodities have also surged in the last year, boosting how much consumers are paying for staples such as bread and milk. Wheat has gained 45 percent in the past year and corn has surged 51 percent.
Retail sales in Germany, Europe's largest economy, unexpectedly dropped for a second consecutive month in April, according to figures published today, as faster inflation left consumers with less money.
Companies and households expect prices to continue to rise. A European Commission index of manufacturers' selling price expectations increased this month, while consumers' outlook for their personal finances deteriorated. Greencore Group Plc, the world's biggest maker of prepared sandwiches, this week said it's been passing on cost increases to customers.
Fed Concerns
In the U.S., Federal Reserve bank presidents also have expressed growing concern about rising prices.
"If inflationary developments and, more important, inflation expectations continue to worsen, I would expect a change of course in monetary policy to occur sooner rather than later, even in the face of an anemic'' economy, Bank of Dallas President Richard Fisher said on May 28.
The ECB has kept its key rate at a six-year high of 4 percent to counter inflation even as the economy of the 15 euro nations cools. The central bank is concerned that wages will increase to compensate for the higher cost of living, threatening a wage-price spiral.
"There has been a sharp deterioration in the inflation picture,'' said Simon Barry, an economist at Ulster Bank in Dublin. "Our base case is the ECB is on hold for now, but the inflation risk has increased and there's no room for complacency.''
The inflation figures published today are an estimate. The statistics office will publish a detailed breakdown of the data and the core rate on June 16.
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