The slight increase from 8. 5% year-on-year in May came as a surprise to analysts, who were once again predicting 8. 5%. Core inflation – which strips away volatile fuel and food prices – also climbed, coming in at 5. 9% compared to 5. 7% in May. Inflation began to climb last year after the government introduced a series of measures aimed at cutting the nation’s enormous budget deficit, which at 9. 2% in 2006 was by far the largest in the European Union.

Headline inflation peaked at 9% in March, and then began what analysts believed would be a steady downward climb. The central bank also saw this as a positive trend, last month cutting the base interest rate by 25 basis points to 7. 75%. Analysts, however, said the surprise rise gave no cause for concern.

“While interest rates are expected to remain unchanged in July the longer term story will see inflation fall rapidly during the second half of the year, which in turn will pave the way to significantly lower interest rates,” said Nigel Rendell from Calyon Bank in London. The central bank is targeting around 5% inflation by the end of the year. (jurnalo.com, news.monstersandcritics.com)