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Eurozone inflation at six-year high

Eurozone annual inflation is expected to be 3.0% in November 2007, six-year high, according to a flash estimate issued by Eurostat, the Statistical Office of the European Union. It was 2.6% in October.

The European Central Bank’s target inflation rate is „below but close to 2%.” Inflation in the Eurozone rose to 3.4% in May 2001, the highest level since 1993. Oil and food prices have boosted inflation around the world in recent times and the question for the ECB is: how long will the rate remain elevated and its related impact on inflation expectations?

The ECB will hold the monthly meeting of its Governing Council next Thursday. Most market analysts expect it to keep its key rate on hold at 4% because of the credit crisis and the expectation that the US Federal Reserve will cut rates from the current level of 4.5% on Dec 11th. A rate hike by the ECB in those circumstances would boost the value of the euro against the dollar at a time when the Eurozone economy is slowing. (finfacts)