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Last Updated: Friday, 4 January 2008, 13:24 GMT
Eurozone inflation remains high
European Parliament building in Strasbourg
The ECB faces a delicate balancing act
Record oil prices and continuing high food costs kept eurozone inflation at 3.1% in December, the European Central Bank (ECB) has said.

The figure, which applies for the nations that share the euro, was the same as November, when it represented a more than six year high.

It is above the ECB's 2% target and the Bank faces the delicate task of cooling inflation without hurting the economy.

The ECB has kept interest rates on hold at 4% since June.

Its figures are a forecast and it will reissue more accurate data later this month.

'Uncomfortable position'

Before the global credit crunch hit in late August, the ECB had been widely tipped to raise rates to cool inflation.

Yet with signs that the lack of global credit was hurting European firms and consumers already suffering from higher energy bills, the ECB has held off any change.

While any rise in interest rates would inevitably cool inflation, it would worsen matters for companies and households.

Howard Archer, Global Insight's chief European economist, said the ECB was in an "uncomfortable position".

He pointed to separate December figures showing weak business growth in service sector firms across the eurozone in December.

"On balance, we expect the ECB to keep up its hawkish rhetoric but to nevertheless leave its key interest rate at 4% next Thursday and for many months to come," he said.

December's inflation figures do not include Malta and Cyprus, which adopted the euro at the start of this month.

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