Report: Europe rocked by inflation

Europe is suffering from “a very strong inflationary shock” with food prices soaring and the cost of oil hitting record highs, said European Union Economic and Monetary Commissioner Joaquin Almunia, according to the Associated Press. A report from the European Commission of Economic and Financial Affairs released today predicted that inflation in the European economy will increase more than a full percentage point to an average of 3.2% this year, up from 2.1% last year. That is far above the European Central Bank's recommended guideline of just under 2%. The European Union today also cut its growth forecast for the 15-country currency zone to 1.7%, far below the growth rate of 2.6% last year. Mr. Almunia said that Europe is resilient and far from recession, but he warned that a possible inflation spiral and any deeper impact on the economy from a banking crisis would choke growth. “Inflation has become a major problem for all of us,” he said. With crude oil trading at more than $100 a barrel and with an increase in food and other commodity prices, Mr. Almunia said the results will have “very strong consequences on [EU] consumers and on the functioning of our economies.” The EU assumes average oil prices will stay above $100 throughout 2009, he said. High prices for food, oil and metals risk worsening inflation because it can increase the production costs for other goods, the EU said in the report.