MercoPress. South Atlantic News Agency

Record EU inflation in June, 4%; ECB ready to hike rate

Annual inflation in the Euro zone hit a record 4% in June, the EU statistics agency Eurostat said Monday, adding pressure on the European Central Bank to raise borrowing costs even as the economy slows.

ECB officials have signaled they may hike their key interest rate on Thursday from 4 to 4.25% to try to cool prices although it could further slowing the economy. ECB President Jean-Claude Trichet has insisted that keeping prices stable is his main task and the bank doesn't face a trade-off against economic growth or job creation. That way of thinking does not fit this current wave of inflation, he said last month. Instead of indicating an overheating economy, inflation, now running at the highest level in 16 years, seems to be acting as a brake on Europe's economy as shoppers steer clear of major purchases. Trichet has said repeatedly that his priority is to limit price volatility in the longer term, but has suggested the bank doesn't plan a series of increases. An ECB rate change on Thursday would be the first since last June, in stark contrast to aggressive action by the Bank of England and the U.S. Federal Reserve. This could mean a strengthening of the Euro against the pound and the US dollar which could make exports dearer. Inflation is fast becoming a political headache across Europe as workers call for more pay and fishermen and truck drivers protest sometimes violently, that surging fuel prices threaten their livelihoods. But EU spokeswoman Amelia Torres told reporters that authorities had to take care not to send prices even higher by granting wage increases that would trigger a price spiral beyond the current "uncomfortably high" rate. These demands come as the European economy slows sharply after a recent expansion cut jobless rates to record lows and reaped record profits for major exporters. Businesses and consumers are gloomy about their future prospects with confidence in the 15 nations that share the Euro dropping to a near three-year low in June.