Eurozone inflation rises sharply to 1.7 per cent

(BRUSSELS) - Inflation in the 16-nation eurozone is expected to rise sharply to 1.7 percent in July, the EU forecast on Friday, although analysts saw no cause for alarm citing still-record unemployment.

If confirmed, the latest European Union forecast would mark the highest twelve-month inflation figure since November 2008, when it stood at 2.1 percent -- just above the European Central Bank's core economic target.

The rate had slipped to 1.4 percent in June, but has risen almost continuously from 0.5 percent last November as the bloc emerged from the worst recession since the 1930s.

Martin van Vliet, an economist with Dutch-based ING bank, suspected a rebound in energy price inflation and a further pick-up in food price inflation were responsible, plus rises in VAT in Spain, Portugal, Greece, and Finland.

However, he saw no particular cause for alarm -- highlighting the record eurozone unemployment rate of 10 percent.

"Despite the recent surge, the medium-term outlook for eurozone inflation remains subdued, in the context of a gradual recovery and still significant spare capacity," van Vliet said.

Paris-based BNP Paribas analyst Clemente De Lucia also highlighted a "large and negative output gap and the weakness of domestic demand" which he said will continue keep core inflation down.

"The ECB still expects consumer inflation price inflation to be moderate over the medium term, and there currently seems no reason to change this view," added London-based IHS Global Insight analsy Howard Archer.

The unemployment rate across the 16 countries which share the euro held at one in 10 in June for the fourth month running, with almost 16 million people were out of work in the common currency area.

The unemployment rate in the wider, 27-nation EU was also unchanged at 9.6 percent in June, still leaving more than 23 million people out of work.

Spain retained the bloc's highest unemployment rate of 20 percent.

By comparison with major international economic rivaks, the unemployment rate was 9.5 percent in June in the United States and 5.2 percent in Japan in May.