“Inflation is definitely a very serious problem”, said Slovenian Finance Minister Andrej Bajuk, whose country holds the EU presidency. According to Eurostat, the EU’s statistics office, annual inflation in the euro zone, pushed by hiking oil and food prices, shot up to 3.2% in January, the highest since the euro was introduced to world markets as an accounting currency in 1999.
European Economic and Monetary Affairs Commissioner Joaquin Almunia told reporters after the meeting, that the main sources of the inflation in Europe came from external factors, warning the EU should be prepared for a possible long-term trend in more expensive food stuff. Agricultural food prices have also risen sharply on the world markets, in particular for wheat, dairy products and poultry. Meanwhile, oil prices increased by over 40%, in euro terms, between November 2006 and November 2007 and have remained on high levels since then. As a result, higher prices for energy and food contributed almost 1 percentage point each to eurozone headline inflation of 3.1% in December last year.
The EU said in a communiqué ahead of the meeting of the EU finance ministers that a key area for action is to enhance the competition and integration of the European product and services market, while it is important that wage developments are in line with productivity. However, Bajuk predicted the inflation would not stay so high for a long term. “We all expect that it will slow down from month-to-month”, he said. Almunia also said on Monday at a meeting of eurozone finance ministers that the spike in inflation would be “temporary”. “We expect the rise in inflation to be temporary, but we are very concerned by this”, he told journalists after the meeting. “So we need to stay alert so that inflation does not become entrenched.”
High inflation has put the European Central Bank into dilemma. In order to take care of an economy, which was already under rising downward risks due to the recent financial turbulence and the slowdown of the US economy, the Frankfurt-based ECB has put its interest rate hike into a halt since June, before which it had raised interest rates eight times in one and a half years to contain inflation. (people.com.cn)
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