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Euro Zone Inflation Pressures in a Sustainted Uptrend


Underlying price pressures in the euro zone are in a sustained uptrend, according to an index published on Friday, supporting expectations that the European Central Bank may accelerate the pace of interest rate rises.

Data from the Economic Cycle Research Institute, which designs indices aimed at predicting business cycles, showed its Eurozone Future Inflation Gauge rose to 105.4 in May from 104.5 in April, compared with levels in the upper 90s a year ago.

"With the (gauge) rising for the sixth consecutive month, euro zone inflation is likely to remain in a cyclical upswing," ECRI said in a statement.

Latest official data show inflation in the 12-nation euro bloc was running at 2.5 percent in June, the same rate as in May and well above the ECB's target ceiling of 2 percent.

On Thursday, ECB president Jean-Claude Trichet gave a strong signal that the bank might deliver its next interest rate hike sooner than expected, at its Aug. 3 meeting.

It has raised its benchmark to 2.75 percent from historic lows of 2.0 percent since December to curb inflationary pressure.

The ECRI gauge aims to anticipate cyclical swings in the region's inflation rate and changes in official interest rate policy by measuring underlying inflationary pressures, rather than actual inflation rates.

The gauge for Germany was unchanged in May at a 5-1/2 year high of 91.5, and ECRI said German inflation was likely to keep trending up in the months ahead.

The French gauge rose to its own 5-1/2 year high of 104.0 from 103.6 in April. "The cyclical upturn in French inflation pressures has become more prominent," ECRI said.

The Italian gauge edged up to 104.5 in May from 104.3 in April and the Spanish index rose to 164.7 from 158.1.

The euro zone gauge uses a weighted average of ECRI's indices for Germany, France, Italy and Spain...