Inflation in Germany, Europe's largest economy, accelerated to the fastest pace in 12 years in June, led by surging energy costs, final figures show.

Consumer prices rose 3.4 percent from a year ago after gaining 3.1 percent in May, the Federal Statistics Office in Wiesbaden said today. That's the fastest pace since Germany started calculating inflation using a harmonized European Union method in 1996 and matches an initial report from June 27.

A 50 percent surge in crude oil prices this year has driven inflation and drained companies' and consumers' spending power just as economic growth weakens. German investor confidence fell to a record low in July. Still, the European Central Bank this month raised its key rate to a seven-year high to keep companies from passing on higher costs to customers and consumers.

``Among the stronger-than-expected headwinds to hit growth in the second half of the year is an unexpectedly large increase in oil prices,'' said Silvia Pepino, senior economist at JPMorgan Chase & Co. in London. Energy costs will ``directly hit household real income, while corporations will increasingly feel the pinch of higher input prices on profit margins.''

In the month, harmonized consumer prices rose 0.4 percent, today's report showed. Under a national measure, prices rose 3.3 percent in the year, the fastest pace since December 1993. In the month, prices increased 0.3 percent, the statistics office said.

Consumer prices for heating oil increased 62 percent from a year earlier and fuel was 15 percent more expensive.

`Worrying' Inflation

In the economy of the 15 euro nations, inflation probably quickened to 4 percent in June from 3.7 percent in the previous month, a Bloomberg survey shows. The European Union's statistics office in Luxembourg will release final figures at 11 a.m. today.

The ECB is concerned that so-called second-round effects will emerge as consumers and companies seek compensation for higher costs by pushing up salaries and prices. Crude oil prices have almost doubled over the past year, breaching $147 a barrel for the first time last week.

ECB President Jean-Claude Trichet on July 9 called current inflation rates ``worrying'' and council member Miguel Angel Fernandez Ordonez said the same day that the Frankfurt-based bank ``must act firmly'' if needed. Germany's Axel Weber said on July 3 that euro-region inflation will stay around 4 percent in coming months and may only abate if oil prices stabilize.

Acceleration Expected

The ECB last month raised its inflation forecasts to about 3.4 percent this year and 2.4 percent next. It previously forecast annual gains in consumer prices to average about 2.9 percent and 2.1 percent respectively.

Still, with the economy cooling, companies may struggle to push through higher prices. German investor confidence declined more than economists expected to the lowest since the index was first compiled in 1991, the Mannheim-based ZEW Center for European Economic Research said yesterday. In the euro region, industrial production fell the most in almost 16 years in May.

In the second quarter, the German economy probably shrank 0.5 percent after expanding 1.5 percent in the previous three months, said Gerd Hassel, an economist at BHF Bank in Frankfurt.

``The third quarter could also be weak,'' Hassel said. ``We could see a technical recession. With weak economic data ahead, we have to expect the ECB to cut interest rates again.''

For now, investors expect the ECB to keep borrowing costs on hold for the rest of the year, Eonia forwards show.