U.S. and euro zone struggle to rein in inflation

By Emily Kaiser

WASHINGTON (Reuters) - Inflation is gathering steam in the United States and Europe, reports released on Wednesday show, and pressure is likely to intensify through the summer as soaring oil prices filter through to many of the basic goods that consumers routinely buy.

U.S. inflation in June rose at the fastest monthly rate since 2005, when oil prices spiked following Hurricane Katrina. On a year-over-year basis, the consumer price index posted a 5.0 percent increase last month, the highest rate since 1991.

"The best that can be said about this number is that it is only one month's data," said Michael Feroli, an economist with JPMorgan in New York. "The current rate of inflation is not what would technically be considered 'galloping' but is certainly advancing at a decent trot."

Surging food and fuel prices drove euro zone inflation up 4.0 percent last month, more than double the European Central Bank's target, the European Union's statistics office Eurostat said on Wednesday.

"We continue to expect that inflation will edge higher to about 4.3 percent over the summer, so in August we are looking for a peak, 4.3 percent, with again food and energy prices contributing to the pickup," said UBS economist Sunil Kapadia.

For the ECB and the U.S. Federal Reserve, each tasked with trying to keep a lid on inflation, the figures are particularly problematic because much of the price pressures stem from things that monetary policy cannot control, like demand from fast growing emerging markets which is helping to push up the price of oil.

The ECB nudged up its benchmark interest rate by one-quarter percentage point this month, while the Fed held its federal funds rate steady at its most recent meeting in June. Neither is in a position to dramatically ramp up short term interest rates while economic growth remains shaky thanks to the global credit crisis and weak housing markets in the United States and some European countries.

Fed Chairman Ben Bernanke faced tough questioning from members of Congress on Wednesday about how the central bank intended to get a grip on inflation without smothering already weak U.S. economic growth.