DUBLIN (Bloomberg) -- European inflation remained at the highest since May 2001 last month as prices for products including bread, milk and eggs soared.

The inflation rate in the euro area was 3.1 percent in December, the European Union's statistics office in Luxembourg said yesterday. That matched an initial estimate published on Jan. 4. Prices rose 0.4 percent on the month, held back by a 0.3 percent decline in energy costs.
Surging prices for food and energy have pushed inflation further above the European Central Bank's 2 percent ceiling in the last year. That prompted ECB President Jean-Claude Trichet to signal the bank won't cut interest rates and may raise them to contain inflation even as economic growth slows.
“Inflation will ease to around 2.75 percent in the second quarter, but it's going to remain fairly sticky this year,” said Dario Perkins, an economist at ABN Amro in London. “With financial markets as vulnerable as they've been, I'm not sure the ECB can do much about it.”
Food-price inflation accelerated to 4.8 percent in December from 4.3 percent the previous month. That is its fastest rate since February 2002, when it was 5.1 percent.
Italy's Parmalat SpA raised prices as much as 20 percent last year to counter higher costs for agricultural commodities. Companies including Unilever, the world's second-largest consumer-products company, also have raised prices. Wheat futures rose 77 percent last year and reached a record $10.095 a bushel on Dec. 17. Soybeans soared 78 percent in 2007.
-------------------------Oil prices
Energy-price inflation eased to 9.2 percent in December from 9.7 percent in November after oil prices fell. They subsequently rebounded, reaching $100 a barrel on Jan. 2.
Accelerating inflation is preventing the ECB from joining central banks in the U.S. and the UK in cutting interest rates even as economic growth slows. European industrial production fell in November for the second time in three months, prompting economists at Royal Bank of Scotland Plc to declare that manufacturing is in its first recession since 2001.
Several ECB council members have signaled concern about workers seeking more pay to compensate for higher costs, which could trigger further price increases. The central bank predicts inflation will average about 2.5 percent this year.
ECB council member Axel Weber yesterday said the bank won't tolerate wage increases that fuel inflation and that the bank will “counter second-round effects as well as other risks” to price stability “resolutely.”
--------------------------Pay raise
German public-sector workers want the biggest pay raise in 16 years. Ver.di, Germany's second-biggest labor union, is seeking 8 percent more for about 1.3 million workers on federal and local government payrolls. Inflation in Germany accelerated last year to the fastest pace since records began in 1996.
“I know the ECB likes to talk tough, but I'm not convinced that will be followed with tough deeds,” said Perkins at ABN. He expects the ECB will keep the benchmark rate at 4 percent this year, having previously predicted two increases.
The Frankfurt-based central bank left its key rate at 4 percent on Jan. 10, when Trichet said it will have to act “preemptively” if higher inflation increases wage settlements.
The so-called core rate of inflation, which excludes energy, food, and tobacco prices, remained at 1.9 percent in December. From the previous month, euro-area core consumer prices rose 0.5 percent.