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Last Updated: Thursday, 15 November 2007, 12:15 GMT
Euro inflation at two-year high
Cheese and meats in a London shop
Many of a shoppers' daily staples are becoming much more pricey
Rising milk, cheese, egg and bread prices have helped push inflation in the eurozone to a two-year high.

Year-on-year inflation in the 13 countries that use the euro rose 2.6% in October, up from 2.1% in September.

Price inflation is at its highest level since September 2005, due also to spiralling oil prices which have forced up the cost of petrol.

The European Central Bank (ECB) has indicated it would be prepared to raise interest rates to subdue inflation.

Disparities

ECB policymakers left interest rates on hold at 4% last month, at a time when the US is cutting borrowing costs and the Bank of England is under pressure to do the same.

But in its latest economic bulletin, the ECB said it "stood ready to counter upside risks to price stability".

HIGHEST EU INFLATION FIGURES
Latvia: 13.2%
Bulgaria: 10.6%
Estonia: 8.7%
Lithuania: 7.6%
Source: Eurostat (October)

According to the EU's statistics agency, food prices are now 3.8% higher than a year ago.

This is due to a range of factors including the extreme weather in many parts of Europe this summer that reduced crop yields, and ravenous demand for dairy products in China.

The annual rate of inflation across the EU as a whole rose to 2.7% last month, from 2.2% the month before.

This figure masks huge disparities in inflation between member states.

LOWEST EU INFLATION FIGURES
Netherlands: 1.6%
Malta: 1.6%
Finland: 1.8%
Denmark: 1.8%
Source: Eurostat (October)

Annual inflation is now running at 13% in Latvia and 10% in Bulgaria, while in Malta, the Netherlands and Denmark inflation remains below 2%.

Despite the latest figures, the ECB said its forecasts still suggested average inflation would remain at about 2% next year.

The ECB is having to balance concerns about rising inflation against clear signs that the weakening US economy and the global credit squeeze is likely to dampen growth across much of Europe next year.

SEE ALSO
No change in European bank rate
08 Nov 07 |  Business
Euro bursts to fresh dollar high
01 Oct 07 |  Business
European economy 'sound' - Trichet
11 Sep 07 |  Business
Eurozone growth more than halved
04 Sep 07 |  Business

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