Sept. 30 (Bloomberg) -- Inflation in the dozen nations sharing the euro accelerated in September to the fastest pace in more than a year after oil prices surged to a record.

Consumer prices rose 2.5 percent from a year earlier, after increasing 2.2 percent in August, Eurostat, the European Union's Luxembourg-based statistics office, said today. That was the biggest annual gain since May 2004 and topped the 2.4 percent median estimate of 32 economists surveyed by Bloomberg. A separate report from the Brussels-based European Commission showed consumers and executives anticipate rising prices.

A 53 percent increase in the price of crude oil this year pushed inflation beyond the European Central Bank's target of just below 2 percent for eight months. That's prompting ECB council members including Yves Mersch and Axel Weber to say the Frankfurt- based bank is concerned about prices, suggesting its next shift on interest rates may be an increase.

``The rhetoric of ECB officials will likely get stronger as they try to limit inflation expectations,'' Silvia Pepino, an economist at JPMorgan Chase & Co. in London, said in an interview before the report's release.

The ECB has held its benchmark interest rate at a six-decade low of 2 percent since June 2003 because of sputtering growth. The ECB's governing council next sets its benchmark interest rate Oct. 6 and 29 economists surveyed by Bloomberg are unanimous in expecting it to leave it unchanged.

Sputtering Growth

The surge in fuel costs is also undermining economic growth by crimping consumer spending and hiring in the region's largest economies, separate reports showed today. Retail sales in Germany, Europe's largest economy, unexpectedly dropped for a third month in August. Sales, adjusted for inflation and seasonal swings, fell 0.8 percent from July, the Federal Statistics Office in Wiesbaden said today.

The unemployment rate in France, the euro-area's second- largest economy, remained at 9.9 percent in September, the Labor Ministry said in Paris. A French consumer confidence index rose to minus 29 in September from a record low of minus 30 in July, according to the Paris-based national statistics office Insee.

There have been signs that economic growth in the euro region may have picked up in the three months through September after a second-quarter slowdown. The euro's 11 percent decline against the dollar this year has made European products more competitive abroad, helping to boost executive optimism.

Business Confidence

An index of business confidence in the euro area rose to minus 7 in September, its highest since February and up from minus 8 in the previous two months, the European Commission, which proposes legislation for the 25-nation European Union, said today. That was better than the minus 9 anticipated by the median of 29 estimates in a Bloomberg survey of economists. A separate gauge of consumer confidence remained at minus 15 for the fifth successive month, in line with expectations.

A barrel of crude for November delivery cost $66.74 on the New York Mercantile Exchange at 11.30 a.m. Frankfurt time. Prices rose to a record $70.85 on Aug. 30.

Mersch of the ECB council said in an interview Sept. 28 that oil prices at current levels risk boosting wages and feeding inflation. Nicholas Garganas, head of the Greek central bank, said in an interview Sept. 21 he's more worried about inflation than flagging economic growth. Weber said four days later the ECB will ``take appropriate action if needed'' to restrain prices.

``One has to be very vigilant about second-rate inflation risks,'' Klaus Liebscher, another member of the ECB's council, told reporters in Vienna yesterday.

Inflation Pressure

Inflation is picking up around the world. Prices paid by U.S. consumers rose 0.5 percent in August. In the same month, U.K. inflation accelerated to 2.4 percent, the fastest in at least eight years.

Air France-KLM Group, Europe's largest airline, yesterday raised fuel surcharges on Air France flights for a fifth time since May because of higher fuel prices. The Paris-based airline raised the fee by 6 euros ($7) on intercontinental flights, 2 euros in European flights and 1 euro on domestic flights. Total surcharges will be 48 euros on long-haul flights and 11 to 13 euros for short-haul routes.

A commission gauge of consumer expectations for prices over the next year rose to 14 in September from 13 in August. A measure of whether manufacturers anticipate higher selling prices climbed to four, the highest since March.

This month, inflation in Germany, Europe's biggest economy, accelerated to the fastest pace in more than four years. Belgium's inflation rate rose to a five-year high and Spanish consumer prices climbed the most since March 2003, government reports showed this week.

Interest-Rate Outlook

While investors do not anticipate higher interest rates this year, they are raising their expectations for them in 2006, futures trading suggests. The implied rate on the three-month contract for June settlement reached 2.44 percent at 10:31 a.m. in Frankfurt, up from 2.16 percent at the start of the month.

``The ECB probably will continue to suggest that the next rate move will be up, but will show no urgency to act soon,'' said Jose Luis Alzola, an economist at Citigroup Inc. in London.

For now, an 8.6 percent jobless rate, almost double that of the U.S., and sluggish economic growth are tempering inflation by hindering most companies from passing on higher costs to consumers. The International Monetary Fund last week cut its forecast for economic growth in the euro area this year to 1.2 percent from 1.3 percent.

The euro-area's so-called core rate of inflation, which excludes energy and food prices, held at 1.3 percent in August, the lowest since February 2001. Eurostat will publish a breakdown of September's data on Oct. 18.

``Companies just can't pass on higher oil prices,'' said Robert Barrie, chief European economist at Credit Suisse First Boston in London. He said he doesn't expect the ECB to raise interest rates until at least the end of next year.

To contact the reporter on this story: Simon Kennedy in Paris at Skennedy4@bloomberg.net.

Last Updated: September 30, 2005 05:04 EDT