European inflation exceeds estimates

Inflation in Europe has exceeded analysts forecasts as households disposable income has reduced, as well as consumer confidence which has steeped pressure on the European Central Bank (ECB) to stabilise prices as inflation is currently running at 4 percent, which is 0.3 percent higher than last month.

The European Union statistics office has said that the record of $142 for a barrel of oil has been a key factor in the increased inflationary pressure.

The ECB has been aware of the problem that is being faced by the euro zone as the downturn in the economy has been a cause for concern for some tome now. Although policymakers have indicated that they are looking to increase the 4.25 percent lending rate, as inflation is running at double the rate, it is clear that the ECB will have to be decisive in their actions.

With consumer confidence low, the greatest problem is that the rate of inflation has crossed a psychological barrier as espoused by Gilles Moec, an economist at Bank of America in London.

This has affected European retail sales which have fallen drastically, whist consumer confidence is at record lows in France, Spain and Italy.

The problem has now been accentuated due to economic problems as the inflationary fears means that workers are demanding higher wages to offset the rise in the cost of living, which spirals inflation out of control.

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