Inflation is spreading like wildfire around the globe, and while not every country is hurting as bad as Zimbabwe with its mind-boggling 2.2 million percent inflation, the United States and Europe are definitely still getting scorched by rising prices.

U.S. consumer prices, as measured by the Consumer Price Index (CPI), increased 1.1% in June, the Department of Labor reported yesterday (Wednesday). That brings the inflation rate for the past 12 months to 5%, well above the U.S. Federal Reserve’s preferred target of 2.0%.

The increase was higher than expected as a 6.6% jump in energy costs and a 0.8% rise in food prices helped to boost CPI up past the expected rate of 0.8%. So-called core CPI, which excludes highly volatile food and energy costs, was 0.3% — higher than its expected rate of 0.2%.

“The core increase is not likely to be repeated. But we have to get used to the idea of 5% headline inflation,” Alan Ruskin, chief International strategist at RBS Greenwich, told Reuters.

Also, yesterday, Eurostat, the EU statistics office, confirmed inflation in the 15-nation Eurozone clocked in at 4% in June, an increase from the 3.7% rate in May, in large part due to a 53% increase in heating oil costs.

Both reports indicate that inflation is ramping up, despite economic downturns in both the United States and European Union. The worsening inflation situation puts the two central banks – the U.S. Federal Reserve and European Central Bank – in a tight spot as interest rate hikes to curb inflation will further hinder economic growth. Conversely, any attempt to boost gross domestic product with an interest rate cut will add fuel to the inflation fire.

“We have a stagnating economy with rising inflation,” Joel Naroff, president and chief economist of Naroff Economic Advisors said in a note to clients after the CPI report was released. “Clearly, the rate of inflation and the slowdown in economic growth is nothing near what we saw in the 1970s, but the combination of the two is creating real problems for the Federal Reserve.”

The ECB raised its key interest rate to 4.25% at its July meeting, however, a softening Eurozone economy could prohibit additional rate hikes over the next several months.

“This all has to do with this oil-price surge and for central bankers, it’s a most frustrating source of inflation because it’s out of their reach,” Janwillem Acket, group chief economist at Julius Baer Holding AG in Zurich, said in a Bloomberg Television interview. “We will probably see in the months ahead growth momentum going lower and then allowing the ECB, probably early next year, to cut rates.”

Source: Escalating Inflation at Home and Abroad Puts Pressure on Central Bankers