Page last updated at 10:40 GMT, Wednesday, 16 July 2008 11:40 UK

Eurozone inflation at record 4%

Hauliers protest in France against fuel costs
Rising fuel costs have sparked protests from hauliers

Rises in food and energy costs pushed up inflation in the 15-nation eurozone to 4% in June from 3.7% in May.

Confirming estimates made two weeks ago, the Eurostat statistics office said the inflation rate was the highest since measurements began in 1997.

A 16% year-on-year rise in energy costs as oil prices headed above $140 a barrel was to blame, Eurostat said.

The European Central Bank (ECB) raised interest rates to 4.25% at the start of the month to try to contain inflation.

The ECB's target for inflation growth is about 2%, but rising food and fuel prices are making it difficult for the central bank to bring inflation back to this level.

At its latest meeting, the ECB increased interest rates to 4.25% from 4% - its first rise in a year - despite evidence that eurozone economic growth is decelerating.

More rate rises?

Core inflation - that is, stripping out energy and food prices - edged up to 1.8% in June from 1.7% in May.

This has sparked fears from some analysts that rising costs of food and fuel are beginning to filter into other prices.

For this reason, many predict further interest rate rises in the region, as the ECB steps up efforts to prevent this from happening.

"Inflation pressures may ease as the economy slows, but the process of filtering through of price rises will not be stopped by the latest ECB interest rate rise - the ECB has more work to do to dampen inflationary expectations," said Nick Kounis, an economist at Fortis.

He expects two more rate rises - one in October and another one in early 2009.

Others were less convinced, arguing that a sharp decline in eurozone growth, in addition to the high cost of borrowing and the strong euro, would dilute inflationary pressures in the coming months.

Rising prices have sparked protests among fishermen, hauliers and farmers across Europe.

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