Europe Round Up - Eurozone Inflation Accelerates To New High

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Monday, news of accelerating inflationary pressures added to lingering concerns over the health of the Eurozone economy.

Eurozone

A final report from the Eurostat showed that inflation increased to 3.7% in May from 3.3% in April. The statistical office, thus, revised up its flash estimate of 3.6% for May inflation, released on May 30. Eurozone inflation was widely expected to come in line with the flash estimate. Inflation reached the highest level since the euro was introduced in 1999 and the highest since June 1992.

Annual inflation in the 15-nation economy continues to stay above the European Central Bank target. The central bank aims to keep inflation rates "below, but close to, 2% over the medium term". An above-target inflation rate is preventing the ECB from lowering borrowing costs in the Eurozone, after the U. S. and the UK cut their interest rates.

Elsewhere, Lucas Papademos, Vice-President of the ECB said in South Korea that higher-than-expected wage growth may emerge, taking into account high capacity utilisation, tight labor market conditions and the elevated inflation perceptions and expectations of consumers. Policymakers are concerned that surging oil and food prices may prompt unions to seek bigger pay hikes, adding further to inflationary pressures in what are called "second round effects".

In Italy, labor costs were up 5.6% year-on-year in the first quarter, the statistical office ISTAT reported.

According to Statistics Austria, consumer prices grew 3.7% year-on-year in May, marking a faster pace than the 3.3% in April. The statistical office said it was the highest inflation rate in 15 years.

In Portugal, consumer prices moved up 2.8% year-on-year in May and 0.4% over the previous month. The Harmonized Index of Consumer Prices, or HICP, was up 2.8% over the year-ago period and 0.8% over the prior month.

Rest of Europe

The latest survey conducted by Confederation of British Industry showed UK's 2009 economic growth is expected to slow to the lowest rate since 1992. The GDP growth is estimated to remain at 1.7% in 2008, down 0.1% from March's forecast. The CBI lowered the growth forecast for 2009 to 1.3% from 1.7%. The GDP growth is projected to ease mainly due to higher commodity prices and weak consumer spending.

In its Quarterly Bulletin, the Bank of England said market participants had revised up their expectations for future policy rates as higher energy costs added to perceived inflationary pressures in the near term. Further, the central bank said dislocation in credit markets, limitation on credit supply and significant increase in energy prices would ultimately act as a drag on economic activity.

On the inflation front, Slovakia's Harmonized Index of Consumer Prices, or HICP, rose 4% year-on-year in May, the Statistical Office of the Slovak Republic revealed. Inflation accelerated from 3.7% recorded in April. The inflation rate came in line with economists' expectations.

Swiss real retail sales, adjusted for working days in April fell 9.4% year-on-year, the Federal Statistical Office announced. Economists had expected adjusted retail sales to grow 4.1%. However, retail sales turnover on an unadjusted basis recorded an annual growth of 2.4% in real terms in April.

Consumer confidence in Turkey fell 1.15% month-on-month to 75.36 in May, the latest monthly survey from Turkish Statistical Institute showed. A reading above 100 indicates an optimistic outlook, while a reading below 100 suggests pessimistic outlook. Separately, the Labor Force Survey said the Turkish jobless rate rose to 10.7% during February to April from 10.4% in the previous year.

Statistics Norway reported that the Norwegian trade surplus reached NOK 39.7 billion in May, the highest since January 2006.

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