Annual inflation in the eurozone rose last month to its highest level since February 1994. It gives the European Central Bank extra reasons to delay cutting interest rates in spite of Europe's economic slowdown.

The increase to 2.9 per cent from 2.7 per cent in October was slightly above market expectations and confirmed that average inflation over the whole of 2000 would overshoot the ECB's target ceiling of 2 per cent.

Economists said the November figure should be the peak for the current economic cycle, but that the annual rate was unlikely to drop below 2 per cent until the middle of next year at the earliest.

Mr Wim Duisenberg, the ECB president, said in a speech in Thailand yesterday that eurozone inflation was under control. "Price stability is being maintained, even if recent price increases have temporarily exceeded our target, mainly as a result of the almost tripling of oil prices," he said.

The ECB is due to publish its internal economic projections for the euro zone tomorrow and is expected to indicate that inflation next year will average slightly under 2 per cent.

This year's average rate will be about 2.3 per cent, double the level of 1999. The main explanation lies in high oil prices and the euro's depreciation, which has made imports more expensive.

The ECB can draw some comfort that core inflation, excluding energy and food prices, was unchanged last month at 1.5 per cent. The ECB made clear last week that it was not contemplating an early cut in interest rates, even though European economic growth is slowing and could be hit even more by a downturn in the US economy and in world trade.

One factor behind the ECB's caution is its concern that high headline inflation may lead to excessive wage settlements. Another is the potential impact of looser fiscal policies that many euro-zone governments are set to adopt next year. Inflation is relatively subdued in Germany and France, the euro zone's heartland, but remains a problem in smaller countries. All 11 euro-zone states now have EU harmonised inflation rates of more than 2 per cent. Greece, which joins the area next month, has inflation of 4 per cent, the highest after Ireland at 6 per cent, Luxembourg at 4.5 per cent and Spain at 4.1 per cent.