FRANKFURT (Bloomberg) -- The rate of inflation in Germany, Europe's largest economy, unexpectedly increased in July due to higher energy and holiday costs and exceeded the European Central Bank's inflation limit for a fifth month.

Inflation accelerated to 2.2 percent from 2 percent the previous month under a harmonized European Union method, the Federal Statistics office in Wiesbaden said. Economists expected German inflation to slow to 1.9 percent from 2 percent in June, the median of 23 estimates in a Bloomberg News survey showed. From a month ago, prices rose 0.7 percent. The ECB has raised interest rates eight times since the end of 2005 to combat price risks. It aims to keep inflation in the euro region close to, but below 2 percent, a goal it hasn't achieved in any year since 1999. The “utlook for price stability remains subject to upside risks,” ECB President Jean-Claude Trichet said July 11. “Firm and timely action continues to be warranted.” “We haven't seen the peak in annual inflation rates yet, there's more to come” said Joerg Lueschow, an economist at WestLB in Dusseldorf. “Due to rapid money-supply growth and increased energy costs the ECB's concern about inflationary pressures certainly won't abate.” -------------------M3, oil rebound Money-supply growth in the euro region unexpectedly accelerated in June, strengthening the central bank's case to raise rates further. M3 money supply, which the ECB uses as a gauge of future inflation, rose 10.9 percent from a year earlier, after increasing 10.6 percent in May, the ECB said. Due to the holiday season, vacation costs mainly contributed to the “significant increase” in consumer prices on the month as well as rising energy costs, the statistics office said. Prices for heating oil gained between 2.3 percent and 5.3 percent in six German states. Package tour and hotel costs rose 16.3 percent. A rebound in oil prices since mid-January may push up inflation in the 13 euro nations as stronger economic growth and faster hiring give companies room to pass on higher costs. Oil traded at $75.36 a barrel on Saturday, up from $50.48 on Jan. 18, close to its record of $78.40 a barrel set in July last year. Still, the euro's 7.9 percent gain against the dollar over the past year is helping to cushion the impact of rising oil prices by making imported goods more affordable. The single currency traded at $1.3637 today. -----------------Price pressures German import prices, an early indicator of inflation pressures increased more than economists expected in June, led by higher oil and metals costs. German companies may find it easier to pass on higher costs with unemployment at the lowest level in 12 years. Unemployment fell in June to the lowest level since March 1995 as growth encouraged companies to invest and hire. The jobless rate, adjusted for seasonal swings, declined to 9.1 percent from 9.2 percent last month, according to figures from the Nuremberg-based Labor Agency. The ECB has said it's concerned about higher energy costs and that workers will push through higher wages. Some unions have already used faster economic growth to win pay increases. Railway workers this week won a 4.5 percent raise, the biggest since World War II. Inflation in the euro region will average about 2 percent this year and next, according to ECB projections. The bank aims to keep inflation close to, but below 2 percent. The economy is forecast to expand about 2.6 percent after 2.7 percent last year. ----------------Wage growth “Although the latest labor cost indicators point to contained wage developments, a pick-up in wage growth is likely over the course of 2007 and into 2008,” ECB Executive Board member Juergen Stark said this month. Due to current oil prices, annual inflation rates are likely to rise again “significantly towards the end of the year,” ECB President Jean-Claude Trichet said July 5. Investors expect the ECB to raise its key rate at least once more this year, futures trading suggests. The implied rate on the three-month Euribor futures contract for December was 4.48 percent Saturday, up from 4.36 percent on May 1. The contracts settle to the three-month inter-bank offered rate for the euro, which has averaged 16 basis points more than the ECB's key rate since the single currency's start in 1999