ECB sees limited inflation impact from higher food prices

Rising international food commodity prices are likely to have only a limited effect on euro area inflation, the European Central Bank said on Thursday. "Movements in international food commodity prices are not always directly relevant for consumer food prices in the euro area," the ECB wrote in its latest monthly report. The recent spike in food commodity prices is "mainly the result of specific regional supply shocks" such as the worst drought in the United States in half a century, the ECB said. Furthermore, in Europe, farm gate prices set by the EU's Common Agricultural Policy "typically have a stronger bearing on consumer food prices than international commodity prices," it said. The ECB aims to keep inflation in the single currency area at close to but below 2.0 percent. In August, area-wide inflation edged up to 2.6 percent from 2.4 percent in July, but largely to rising oil prices and to a lesser extent to food prices. Last week, the ECB raised its eurozone inflation forecasts for this year and next year to 2.5 percent and 1.9 percent respectively.