European inflation accelerates to 16-year high

Inflation in Europe accelerated to the fastest pace in more than 16 years in July after oil prices reached a record.

The inflation rate rose to 4.1 percent from 4 percent in June, the European Union statistics office in Luxembourg said yesterday. The rate, the highest since April 1992, matched the median estimate of 36 economists. A separate report yesterday showed unemployment remained at 7.3 percent.

The European Central Bank, which aims to keep inflation just below 2 percent, raised its key interest rate by a quarter point to 4.25 percent on July 3, a seven-year high. 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 this month plunged the most since the Sept 11 terrorist attacks in 2001.