MercoPress. South Atlantic News Agency

Inflation emerges as the main challenge for US and EU

Energy and food prices seem out of reach of Central Banks strategies

November inflation in United States and the European Union rose at faster paces than anticipated spurred by energy and food prices. Consumer prices in November in the US rose 0.8% over October while in the 13 nation Euro zone block they climbed to 3.1% compared to November last year and up from October's 2.6% increase.

For the US it's the highest surge in two years and for the EU the highest level in six years. The European Central Bank target for 2007 is 2%. The figures come as US and UK central banks have been cutting interest rates to bolster weakening economic growth. The higher than expected inflation figure saw the dollar post its biggest one-day rise against the Euro in more than three years. This is because traders now expect the Federal Reserve to delay any further rate cuts. By late Friday afternoon trading in New York, the euro was down 1.5% to $1.4412 against the dollar. This is the strongest the dollar has been against the single European currency since October. But US shares fell on concerns that the Federal Reserve would now not cut interest rates. That expectation helped strengthen the US dollar as investors looked for assets in currencies that offered higher returns. Earlier on Friday, a report showed that inflation in the Euro-zone, which covers the 13 nations that use the single European currency, also surged. According to figures from Eurostat, consumer prices rose 3.1% in November compared with the same month in 2006, the biggest rise in more than six years and up from October's 2.6%. Central banks are battling to keep inflation in check as a slump in the price of the US dollar, and higher energy costs have pushed up prices. However, at the same time they are also trying to limit the impact of a global credit crunch caused by problems in the US mortgage market. There are fears that the high energy costs and problems in the financial markets will act as a brake on consumer spending, and hamper economic growth. Analysts said that central banks including the US Federal Reserve will have a number of factors to consider when setting borrowing costs in coming months. The last time US inflation rose by such a large amount on a monthly basis came after an energy shortage in the wake of hurricane Katrina in September 2005. As well as energy, the cost of clothing, airline tickets and medication also rose in November in the US. Consumer prices increased 4.3% on a yearly basis - the most dramatic rise since June 2006. While the US central bank has cut interest rates three times in recent months to boost the economy, analysts suggest that these figures will make another interest rate cut less likely. For the year to date, inflation is at 4.2%, compared with 2.6% in the same month in 2006. The rise exceeded forecasts and is above the European Central Bank's (ECB) 2% annual target. The ECB has left interest rates on hold, but analysts say these figures could fuel the case to raise them. Core inflation, which excludes energy and food prices, rose 2.3% on a yearly basis. However the ECB has been reluctant to change rates, faced with the dual problems of rising inflation and slower economic growth. Following the release of the figures, the European Union urged businesses, unions and governments to unite to limit the impact of high oil prices. EU spokesperson Amelia Torres said the rise called for renewed attention and moderation from governments, social partners and companies to avoid "second-round effects". Energy prices climbed 3.4% in November compared with a month earlier while the year-on-year rise was 9.7%. Food prices rose 4% year-on-year or 0.7% month-on-month.