European inflation accelerated to the fastest pace in more than a year in May as surging energy costs and a weaker euro made imported goods more expensive across the 16-nation region.
Euro-area consumer prices rose 1.6 per cent in May from a year earlier after increasing 1.5 per cent in April, the European Union statistics office in Luxembourg said today.
The rate is the fastest since December 2008 and in line with an estimate published on May 31st. Labour-cost growth accelerated to 2.1 per cent in the first quarter from a year earlier from 1.7 per cent in the fourth quarter, a separate report showed today.
The euro's 14.5 per cent drop against the dollar this year is pushing up inflation just as rising energy prices hurt consumers' purchasing power. European Central Bank president Jean-Claude Trichet said earlier this month that inflation might further accelerate even with the euro region's economy seen expanding at only a "moderate pace" this year.
The euro was little changed against the dollar after the data, trading at $1.2294 at 10:02 a.m. in London, down 0.2 per cent on the day.
Consumer prices increased 0.1 per cent from April, when they rose 0.5 per cent, today's report showed. Prices for alcohol and tobacco increased 4.4 per cent from a year earlier, while energy costs rose 9.2 per cent. Prices for clothing, household equipment and hotels also rose.
The region's core inflation rate, which excludes volatile energy and food costs, held at 0.8 per cent in May. The ECB on June 10th raised its inflation forecast for next year to about 1.6 per cent from around 1.5 per cent. In 2010, consumer prices may rise around 1.5 per cent on average, the Frankfurt-based central bank forecast. The euro-area economy may expand around 1 per cent this year, it said.
With rising unemployment eroding consumers' willingness to spend and governments cutting budget deficits, a recovery is already showing signs of weakening. In Germany, Europe's largest economy, investor confidence fell more than economists forecast in June, data showed this week. European economic confidence also declined in May.
The euro's drop has helped support economic expansion by making exports more competitive abroad just as the global recovery gathers strength.
Reuters