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Inflation in eurozone at highest level in two years

Published 17/08/2010

Inflation in the 16-nation eurozone rose to 1.7% in July, its highest level in nearly two years.

The last time inflation in the single currency was this high was November 2008, when it stood at 2.1% - just above the European Central Bank's core economic target of 2%.

The 12-month rate slipped to 1.4% in June but has risen from 0.5% last November as the eurozone economies emerged from the worst recession since the 1930s, European Union data showed.

In the wider, 27-nation EU, which includes non-euro member Britain, annual inflation rose to 2.1% in July compared to 1.9% a month earlier.

Last week, official figures showed that the eurozone economy grew at the fastest pace in four years in the second quarter as it surged past a retreating United States.

A resurgent Germany helped the combined gross domestic product of the 16 countries that use the euro rise to a better-than-expected 1%, compared with the first three months of the year.

It was the strongest quarterly expansion since the second quarter of 2006, despite a 1.5% contraction in Greece.

On an annual basis, Eurostat said the eurozone economy grew by 1.7%. The figures confirm that the eurozone grew faster than the US during the quarter, contrary to expectations just a couple of months ago when Europe was threatened by a severe government debt crisis.

Growth across the US slid back to just 0.6% in the second quarter of 2010, having touched 0.9% in the first three months of the year, Eurostat said, whereas Europe had barely managed 0.2% growth up to March.

The wider 27-country EU, which includes non-euro members such as Britain and Sweden, also grew by a quarterly rate of 1% for an annual increase of 1.7%

Germany's economy surged ahead in the second quarter, growing 2.2% - the fastest pace since reunification two decades ago and beating market forecast as a global recovery fed demand for its exports.

Prices were also raised by the decision of some countries - such as Finland, Greece, Spain, Portugal and Romania - to raise their rates of VAT in July.

Astrid Schilo, Europe economist at HSBC, said: "The core inflation rate is slightly higher but with the VAT hikes there have been in the eurozone, that's not surprising."

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