MercoPress. South Atlantic News Agency

Euro zone inflation at its fastest; unemployment 7.3%

Inflation in the Euro zone accelerated to its pace in more than 16 years in July, 4.1% from 4% in June, according to the European Union statistics office in Luxembourg. A separate report showed unemployment was 7.3% in June.

All eyes are now set on the European Central Bank which is mandated to keep inflation below the 2% target and raised its key interest rate by a quarter points to 4.25% to a seven year high on July 3. The risk is that higher borrowing costs will exacerbate the economic slowdown. Europe's manufacturing and service industries are contracting and confidence in the economic outlook in July plunged. The Euro rose to 1.5616 US dollars at Thursday noon in Frankfurt after touching 1.5522 yesterday, the weakest since June 24. Investors raised bets on another ECB rate increase. In its latest reports the ECB said it wants to prevent companies passing on higher costs and has urged workers not to seek pay raises to compensate for increased living expenses, arguing this may unleash a wage-price spiral. Faster inflation is eroding purchasing power, weighing on the economy just as the Euro advance and a deepening US housing slump hurt European exports. EU statistics office said Thursday that unemployment rose to 7.3% in June from 7.2% in May, the first increase in three years. ECB has said Europe's economic fundamentals are sound but in June it forecast the pace of the Euro area expansion will slow to about 1.5% in 2009 from 1.8% this year and 2.7% in 2007. ECB council member Klaus Liebscher said in an interview published last July 25th that "we haven't exhausted our room for maneuver'' on interest rates. "We're far from giving the all clear on the inflation development".