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Eurozone reels from inflation 'shocker'

Jaimie Kanwar

Inflation in the Eurozone is now higher than at any time since official records began.

Eurozone inflation soared to 4% in June - the highest level in twelve years, and increasing the prospect of the European Central Bank (ECB) raising interest rates later this week.

Escalating fuel costs, a product of the relentless rise in oil prices above $140 a barrel, have pushed up inflation in leading economies such as Germany, France and Spain. At the same time, growth is slowing across the single currency bloc.

Rising food and fuel prices are at the root of inflationary pressures which have sparked protests by hauliers, fishermen and farmers across Europe.

Gilles Moec, an economist with the Bank of America, commented: "The figures are a bit of a shocker and they are clearly going to rattle the ECB further. It certainly plays into the hands of the hawks on the ECB governing council."

Experts expect the ECB to lift rates by a quarter point to 4.25% on Thursday. Should they do so, it would be the first increase in the cost of borrowing across the 15-member eurozone since June 2007.

ECB president Jean-Claude Trichet hinted last month that a rate hike might be imminent as inflation accelerates further away from the ECB's 2% target.