(Updates with analysts' quotes, Italy figure)
By Marcin Grajewski
BRUSSELS, July 31 (Reuters) - Euro zone inflation jumped to
another record high of 4.1 percent year-on-year in July as
forecast, data showed on Thursday, but a bleak economic outlook
may discourage a further interest rate increase this year.
Price growth in the 15-nation euro area accelerated from
July's 4.0 percent, moving further above the European Central
Bank's target of just below 2 percent, European Union statistics
office Eurostat said in its flash estimate for July.
It was the highest inflation figure for the currency area
since measurements started in 1997.
Analysts polled by Reuters had expected June inflation to
rise to 4.1 percent, boosted by soaring energy and food prices.
"We do see a peak in inflation which was probably reached
with 4.1 percent in July. Current oil prices suggest that
inflation will be below 3.5 percent by the end of the year,"
said Holger Schmieding, economist at Bank of America.
Separately, unemployment in the euro zone unexpectedly edged
up, in another sign of a slowing economy.
Eurostat revised up the jobless rate for May to 7.3 percent
from a previous reading of 7.2 percent, and said the figure held
stable in June. Economists had expected June unemployment to
come in at 7.2 percent.
The economy is burdened by a strong euro, soaring prices of
food and energy, tight credit conditions and an increasingly
visible slowdown in other major industrialised countries.
ECB DILEMA
Economists said that although the high inflation figure
could revive talk about a second ECB rate rise this year, the
most likely scenario was for the bank to refrain from a hike.
"With oil prices off their peak and downward momentum in
economic activity gathering pace, dampening inflationary
pressures in the medium term, the most likely path for interest
rates is to be on hold for the rest of the year," said Martin
van Vliet, economist at ING Bank.
The ECB's policymakers stress the importance of anchoring
inflation expectations.
"Our first priority is to curb inflation," ECB Governing
Council Member Nout Wellink said in an interview published on
Thursday before the inflation data was released.
Guy Quaden, also on the bank's Council, said in the same
interview: "... it is important that the inflation expectations
in the medium term remain anchored to our target."
The ECB increased its main interest rate by 0.25 percentage
point to 4.25 percent in early July.
The ECB wants to limit the impact of growing energy and food
costs on prices in the wider economy, trying to prevent what it
calls a wage-price spiral.
"It is clear that the ongoing growth stagnation is already
taking care of the core components of inflation," said Aurelio
Maccario, chief euro zone economist at UniCredit.
Eurostat's inflation estimate contained no monthly data or
detailed breakdown but separate country data has shown inflation
in Germany, the euro zone's biggest economy, holding steady at
3.3 percent, the highest level since December, 1993.
Italy said on Thursday its inflation sped up to a record 4.1
percent in July year-on-year from 4.0 percent in June.
In Spain, a one-time boomer hit by a housing bust, inflation
in July climbed to 5.3 percent from 5.1 percent in June, the
highest since records began in January 1997, while Belgian July
inflation hit a 24-year high of 5.9 percent.
(Additional reporting by Philip Blenkinsop in Brussels and
Marja Novak in Ljubljana)
