May 30 (Bloomberg) -- European inflation accelerated faster than economists forecast this month as oil prices jumped to a record, adding to what European Central Bank President Jean-Claude Trichet has called policy makers' ``biggest challenge.''

The inflation rate in the euro area rose to 3.6 percent, matching a 16-year high, from 3.3 percent in April, the European Union statistics office in Luxembourg said in a statement today. Economists had forecast a 3.5 percent rate, according to the median of 36 estimates in a Bloomberg survey.

The ECB, which aims to keep consumer-price growth below 2 percent, said yesterday there are signs inflation expectations ``have been trending up recently'' and it's imperative that they remain contained. The Frankfurt-based bank celebrates its 10th anniversary this weekend, having failed to meet its target for the last eight years.

``There has been a sharp deterioration in the inflation picture,'' said Simon Barry, an economist at Ulster Bank in Dublin. ``Our base case is the ECB is on hold for now, but the inflation risk has increased and there's no room for complacency.''

Separate figures published by the statistics office today show that unemployment in the euro area remained at a record low 7.1 percent in April.

Crude Oil

Crude oil prices have doubled in the last 12 months and reached a record $135.09 May 22. Food commodities have also surged in the last year, boosting how much consumers are paying for staples such as bread and milk. Wheat has gained 45 percent in the past year and corn has surged 51 percent.

Soaring prices have led to protests in Europe and companies and consumers expect prices to continue to rise. A European Commission index of manufacturers' selling price expectations increased this month, while consumers' outlook for their personal finances deteriorated. Greencore Group Plc, the world's biggest maker of prepared sandwiches, this week said it's been passing on cost increases to customers by raising its prices.

In France, fishermen have blockaded ports in the past week to protest against the increase in oil prices, while a group representing bus companies in Ireland said it may have to stop school runs because of the cost of gasoline.

Key Rate

The ECB has kept its key rate at a six-year high of 4 percent to counter inflation even as the economy of the 15 euro nations cools. The central bank is concerned that wages will increase to compensate for the higher cost of living, threatening a wage-price spiral.

``We're looking at below trend growth'' in the euro area, said Barry, the Ulster Bank economist. ``But for the ECB to consider cutting, that would require a pretty sharp weakening in the economy and nothing so far is heading that way.''

The figures published today are an estimate. The statistics office will publish a detailed breakdown of the data and the core rate on June 16.

To contact the reporter on this story: Fergal O'Brien in Dublin at fobrien@bloomberg.net.

Last Updated: May 30, 2008 05:00 EDT